01747cas a2200253 a 4500 AALejournalIMF001049 230101c9999 xx r poo 0 0eng d 5.00 USD 9781451855791 1018-5941 BD-DhAAL BD-DhAAL Smith, T. Portfolio Diversification, Leverage, and Financial Contagion / T. Smith, Garry Schinasi. Washington, D.C. : International Monetary Fund, 1999. 1 online resource (38 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students Models of 'contagion' rely on market imperfections to explain why adverse shocks in one asset market might be associated with asset sales in many unrelated markets. This paper demonstrates that contagion can be explained with basic portfolio theory without recourse to market imperfections. It also demonstrates that 'Value-at-Risk' portfolio management rules do not have significantly different consequences for portfolio rebalancing and contagion than other rules. The paper's main conclusion is that portfolio diversification and leverage may be sufficient to explain why investors would find it optimal to sell many higher-risk assets when a shock to one asset occurs. Mode of access: Internet Schinasi, Garry. IMF Working Papers; Working Paper ; No. 1999/136 Full text available on IMF http://elibrary.imf.org/view/journals/001/1999/136/001.1999.issue-136-en.xml IMF e-Library