The mean reversion/persistence of financial cycles: Empirical evidence for 24 countries worldwide

Abstract

Research background: The globalization trend has inevitably enhanced the connectivity of global financial markets, making the cyclicality of financial activities and the spread of market imbalances have received widespread attention, especially after the global financial crisis. Purpose of the article: To reduce the negative effects of the contagiousness of the financial cycles, it is necessary to study the persistence of financial cycles and carve out the total connectedness, spillover paths, and sources of risks on a global scale. In addition, understanding the relationship between the financial cycle and economic development is an important way to prevent financial crises. Methods: This paper adopts the nonlinear smoothing transition autoregressive (STAR) model to extract cyclical and phase characteristics of financial cycles based on 24 countries during 1971Q1?2015Q4, covering developed and developing countries, the Americas, Europe, and Asia regions. In addition, the frequency connectedness approach is used to measure the connectedness of financial cycles and the relationship between the global financial cycle and the global economy. Findings & value added: The analysis reveals that aggregate financial cycles persist for 13.3 years for smoothed and 8.7 years for unsmoothed on average. The national financial cycles are asynchronous and exhibit more prolonged expansions and faster contractions. The connectedness of financial cycles is highly correlated with systemic crises and contributes to the persistence and harmfulness of shocks. It is mainly driven by short-term components and exhibits more pronounced interconnectedness within regions than across regions. During the financial crisis, the global financial cycle movements precede and are longer than the business fluctuations. Based on the study, some policy implications are presented. This paper emphasizes the impact of systemic crises on the persistence of financial cycles and their connectedness, which contributes to refining research related to the coping mechanisms of financial crises.

Management of Operational Risk in the Context of Financial Performance of SMEs

“…The growth of SME costs in countries close to military conflict (countries of the Visegrad Group) is affected to the greatest extent. Many research studies examine the importance and benefit of risk management in enterprises and currently also assess various negative influences and impacts on the financial performance of enterprises [4,[24][25][26]. The mentioned research studies and empirical research declare the growing interest of research teams in examining the issue of risk management in the enterprise, which is also testified by the following processed analysis.…”

An empirical investigation into regional housing market synchronisation in Poland

“…This phenomenon can be explained by global capital flows (Alter et al, 2019), a conclusion much in line with mainstream economic research. A recent econometric study reveals that capital mobility positively relates to business cycle synchronisation (Beck, 2021;Lazarevic et al, 2022;Lv, 2023). The important influencing factors can also be found in analysing the migration trends and their links with the business cycles and overall financial stability (Vučković & Škuflić, 2021), especially in the case of intellectual migration (Oliinyk et al, 2022).…”

Impulsive Response Analysis of Financial Markets in QUAD Economies: A VAR Modelling Approach

“…Financial market integration exists when financial markets from several nations behave or move harmoniously and exhibit the same expected risk-adjusted returns (Patel, 2019). Many researchers have empirically examined the existence of long-and short-term financial market integrations of various economies inter se and intra se (Alomari et al, 2024;Ertuğrul, 2024;Lv et al, 2023;Nagina, 2022;Patel et al, 2022;Jacob et al, 2021). The researchers have selected different economies on different grounds for empirically analyzing the presence of cointegration among their markets, viz.…”

“…The researchers have selected different economies on different grounds for empirically analyzing the presence of cointegration among their markets, viz. financial, commodity, or currency markets and macroeconomic variables such as financial and economic development, financial growth, imports, foreign direct investments, energy consumption, CO2 emission, infrastructure development, etc (Allayioti & Venditti, 2024;Alomari et al, 2024;Ertuğrul, 2024;Sharma & Khanna, 2024;Lv et al, 2023;Nagina, 2022;Patel et al, 2022;Jacob et al, 2021).…”

“…Due to the crises' knock-on consequences, researchers have become highly circumspect regarding the comovement of financial markets. Numerous researchers (Alomari et al, 2024;Ertuğrul, 2024;Lv et al, 2023;Nagina, 2022;Bhutto et al, 2020;Bhullar, 2019;Gulzar et al, 2019;Inci, A. C., 2018;Polat & Gemini, 2017;Paramati et al, 2016;Bentes, S. R., 2015;Guidi & Ugur, 2014;Rajwani & Mukherjee, 2013;Gupta & Guidi, 2012) have acknowledged this integration and its consequences on international stock markets.…”