Financial contagion and the wealth effect: An experimental study

We design a laboratory experiment to test the importance of wealth as channel for financial contagion across markets with unrelated fundamentals. In sequential global game, we analyze decisions group investors that hold assets in two markets. consider treatments vary level diversification these both treatments, find evidence contagion. When have completely diversified portfolios, provide due effect: certain ranges fundamentals, show decrease from investment first market makes withdrawals more likely second, thereby increasing probability crisis. portfolio is small, then social imitation relevant explaining