Determinants of time varying co-movements among international stock markets during crisis and non-crisis periods

Mollah, Sabur; Hou, Ai Jun; Mobarek, Asma; Muradoglu, Gulnur

Abstract

In this paper, we use the DCC MIDAS approach to assess the validity of the wake-up call hypothesis for developed and emerging markets during the global financial crisis (GFC). We use this approach to decompose the total correlations into short- (daily) and long-run (quarterly) correlations for the period from 1999 to 2011. We then examine the transmission mechanisms by regressing the quarterly economic, financial, and behavioral variables on the quarterly DCC–MIDAS correlations. We find that country specific factors are crisis contingent transmission mechanisms for the co-movements of emerging country pairs and mixed pairs of advanced and emerging countries during the global financial crisis. However, we do not observe wake-up calls in the transmission of the crisis among advanced country pairs. The classification of the transmission mechanisms for crisis and non-crisis periods with the different country pairs has important implications for crisis management as well as for portfolio investment strategies. Thus, our findings contribute to the discussion on the role and effectiveness of the international financial architecture.

Citation

Mollah, S., Hou, A. J., Mobarek, A., & Muradoglu, G. (2016). Determinants of time varying co-movements among international stock markets during crisis and non-crisis periods. Journal of Financial Stability, 24, 1-11. https://doi.org/10.1016/j.jfs.2016.03.003

• Acceptance Date: Mar 11, 2016
• Online Publication Date: Mar 19, 2016
• Publication Date: Jun 1, 2016
• Deposit Date: Nov 22, 2016
• Publicly Available Date: Nov 22, 2016
• Journal: Journal of financial stability
• Print ISSN: 1572-3089
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 24
• Pages: 1-11
• DOI: https://doi.org/10.1016/j.jfs.2016.03.003
• Keywords: Stock market co-movement, Advanced and emerging markets, Crisis, Transmission mechanisms
• Public URL: https://hull-repository.worktribe.com/output/445441
• Publisher URL: http://www.sciencedirect.com/science/article/pii/S1572308916300031
• Additional Information: Authors' accepted version of article published in: Journal of financial stability, 2016, v.24
• Contract Date: Nov 22, 2016