Equity market contagion during global financial and Eurozone crises: Evidence from a dynamic correlation analysis

Abstract

The devastation resulting from the recent global financial and Eurozone crises is immense. Most researchers commonly believe that the global financial crisis originated in the United States, and spread immediately to global financial hubs where it eventually became the Eurozone crisis. Several studies have been conducted on financial market contagion during both global and Eurozone crises; however, the issue of whether equity market contagion spreads from the United States to the world equity markets during these crises has not been addressed yet. Using US dollar-denominated MSCI daily indices from fifty-five equity markets for the period 2003-2013, we have found evidence of contagion in developed and emerging markets during the global and Eurozone crises. We show that contagion spread from the United States to the world markets during both crises. Our regression results identify that the bank risk transfer between the United States and other countries is the key transmission channel for crosscountry correlations. This study has an important policy implication for portfolio diversification between the United States and other countries during these crises.

Equity Market Contagion in Return Volatility during Euro Zone and Global Financial Crises: Evidence from FIMACH Model

“…We use the terms level series or volatility of stock indexes to refer the squared stock index return series. Mollah et al (2016) show that during both crises contagion spread from the USA to other markets. Hence, the cross-correlation coefficients of the volatility measure between the three US stock index return and the rest of the stock markets are shown in Table 1.…”

“…The financial market contagion (i.e., increased correlation between stock markets) is an extensively researched subject (e.g., Caporale et al 2005;Forbes and Rigobon 2002;Mollah et al 2016). The case of contagion is examined in empirical studies of the 1987 crash of the US stock market, the GFC, EZC, as well as Mexican, Brazilian, Russian and Asian crises.…”

Decision Making by Extracting Soft Information From CSR News Report

“…3846/tede.2018.3121 economic resources, and negatively impacts stock markets' development. At the micro-level, a corporate financial crisis typically refers to when a firm has a net operating loss, fails to pay debts, or violates regulations or laws (Hyun, 2016;Mollah, Quoreshi, & Zafirov, 2016). While various countries have dissimilar accounting principles and rules, and the definition of a financial crisis is not always the same, it is widely agreed that a financial crisis results in the tremendous weakening of corporates' profitability over time.…”

Mutual Information Based Analysis for the Distribution of Financial Contagion in Stock Markets

“…As globalization is one of the main features of the contemporary world economy, researching financial contagion is helpful for investors and policymakers [7][8][9]. This field has already attracted many studies.…”