Financial Contagion
a.k.a. Contagion
When a financial crisis in one place spreads to other markets or countries, like a virus.
In plain English
When a financial crisis in one place spreads to other markets or countries, like a virus.
Contagion happens when panic in one market leaks into others. Investors who lose money in one place sell elsewhere to raise cash, and fear spreads to anything that looks similar.
The 1997 Asian crisis, the 2008 meltdown and the eurozone debt crisis all spread this way. Correlations jump toward 1 in these moments, so diversification can seem to vanish.
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