Contagion

Refers to an increase in correlation of asset returns that is more than expected. Sometimes also called excess correlation. For example, during the East Asian crisis that began in July 1997 when the Thai currency devalued, many emerging markets as far away as South America became increasingly correlated. Contagion is difficult to identify because you need some sort of measure of the expected correlation. It is complicated because correlations are known to change through time, for example, see Erb, Harvey and Viskanta's article in the 1994 Financial Analysts Journal. In periods of negative returns, correlations (and volatility) are known to increase, so what might appear to be excessive correlations may not be contagion.