Credit contagion refers to the propagation of economic distress from one firm to another. This article proposes a reduced-form model for these contagion phenomena, assuming they are due to the local interaction of firms in a business partner network. We study aggregate credit losses on large portfolios of financial positions contracted with firms subject to credit contagion. In particular, we p...

Portfolios are constructed to increase returns and manage risk. In high-risk investment strategies, central measures of risk must be complemented with tail measures of risk. An unanticipated event impacting securities of one firm can contagiously affect those of other firms through a contagion flow process. The connections between firms due to a variety of factors can spread the contagion, and ...

This article shows that Medical Innovation—the landmark study by Coleman, Katz, and Menzel—and several subsequent studies analyzing the diffusion of the drug tetracycline have confounded social contagion with marketing effects. The article describes the medical community’s understanding of tetracycline and how the drug was marketed. This situational analysis finds no reasons to expect social co...

We propose a multiscale correlation contagion statistic to test for stock market contagion during the global financial crisis (GFC) from the US to the other six G7 and BRIC countries. We find that cross-market correlations between the US and selected countries are conditional on the time scale. Stock market contagion during the GFC is dependent on both the recipient country and the time scale, ...

Human empathy can extend to strangers and even other species, but it is unknown whether non-humans are similarly broad in their empathic responses. We explored the breadth and flexibility of empathy in chimpanzees, a close relative of humans. We used contagious yawning to measure involuntary empathy and showed chimpanzees videos of familiar humans, unfamiliar humans and gelada baboons (an unfam...

Adults tend to believe that objects can function as extensions of people's selves. This belief has been demonstrated in that changes to people's sense of self affect their attachment to personally valuable objects, and vice-versa. Here we tested the development of this belief. In Study 1 we found that manipulating 5-year-olds' self-worth via positive or negative feedback on performance, affecte...

This paper documents an increase in the correlation of credit default swap (CDS) spread changes during the credit crisis and investigates the source of that increase. One possible explanation is that correlations increased because fundamental values became more correlated during the crisis. Alternatively, correlations may have increased because of contagion, rather than because of an increase i...

This paper explores a global game model of information-based financial contagion. By revealing information on a common fundamental factor and thereby affecting the behavior of creditors, the failure of a single firm can trigger the failure of another firm. The model provides a unique equilibrium framework to assess the consequences of contagion and yields some hitherto unnoticed insights. While...

This paper reviews the analytical and empirical literature on contagion. It begins by discussing how to define contagion, the theoretical evidence on how it might occur, and the empirical literature evaluating its causes during the financial crises of the 1990s. There has been less contagion during recent crises, however, as countries, investors, and the international financial institutions hav...