The Spreading of Financial Crisis: Effect of Investor Behavior or of Economic Channels

Objectives It’s very important to quantify the influence of various factors in the development of financial crisis. Once these factors can be determined we can attempt to stop this phenomenon or at least minimize its effects. Prior Work Previous studies have shown that the phenomenon of globalization makes extremely disturbing phenomena quickly transmitted from one market to another, provided that these markets will be connected. But what is the explanation when countries not linked in any way react in same way at the appearance of disturbances in one of the country? Approach We study the phenomenon of contagion by comparing the economy and financial market evolution, in Romania, during the last global financial crisis. Results We can conclude that the Romanian market actually reacts to the behavior of investors while the in the real economy effects are felt much later and/or have a weaker intensity. Implications For investors it’s important to follow their expectations of the market evolution much more than the current economic conditions. Value Knowing the influence of various factors in the evolution of financial markets we will know what steps must be taken so that these crises will not be felt in the real economy or their impact will be reduced.