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

Mollah, Sabur; Quoreshi, A. M. M. Shahiduzzaman; Zafirov, Goran

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. Through 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 cross-country correlations. This study has an important policy implication for portfolio diversification between the United States and other countries during these crises.

Citation

Mollah, S., Quoreshi, A. M. M. S., & Zafirov, G. (2016). Equity market contagion during global financial and Eurozone crises : evidence from a dynamic correlation analysis. Journal of International Financial Markets, Institutions and Money, 41, 151-167. https://doi.org/10.1016/j.intfin.2015.12.010

• Acceptance Date: Dec 23, 2015
• Online Publication Date: Jan 8, 2016
• Publication Date: 2016-03
• Deposit Date: Nov 22, 2016
• Publicly Available Date: Nov 23, 2017
• Journal: Journal of international financial markets, institutions and money
• Print ISSN: 1042-4431
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 41
• Pages: 151-167
• DOI: https://doi.org/10.1016/j.intfin.2015.12.010
• Keywords: Contagion; Financial markets; Global financial crisis; Eurozone crisis
• Public URL: https://hull-repository.worktribe.com/output/445466
• Publisher URL: http://www.sciencedirect.com/science/article/pii/S1042443115001237
• Additional Information: Authors' accepted manuscript of an article which has been published in: Journal of international financial markets, institutions and money, 2016, v.41
• Contract Date: Nov 23, 2017