Spillover Effects among European,the US and Moroccan Stock Markets before and after the Global Financial Crisis

ABSTRACT

This paper assesses return and volatility spillovers among stock markets in Morocco, the US, UK, France and Germany represented respectively by MASI, S&P 500, FTSE 100, CAC 40 and DAX 30 indices, both before and after the global financial crisis (GFC) of 2008. The daily frequency data cover the period from January 2nd, 2002 to June 30th, 2016. Using the Diebold and Yilmaz approach, the results show varying financial connectedness between the Moroccan and the above mentioned developed stock markets. In fact, the significant increase of spillover index during the post-financial crisis period demonstrates that the US and European stock markets were the most affected. On the other hand, despite a relative increase of spillover effects coming from the US and German equity markets, our results show decline in the total net spillovers experienced by the Moroccan market after the recent financial crisis. These findings may provide some useful information to support decision-making and trading strategies for international investors.     

The Effect of 2008 Crisis on the Volatility Spillovers among Six Major Markets

The scope of this paper is to determine whether global stock markets function differently under conditions of economic crisis by measuring volatility spillovers between six major markets, namely the US, the UK, Germany, Spain, Turkey, and Greece. We examine the volatility spillover effects of the 2008 US financial crisis to these six major markets using daily stock returns from January 2003 to December 2014, before, during, and after the 2008 financial crisis. We combine the Diebold and Yilmaz methodology with the stochastic volatility model of Taylor implemented through the sequential Efficient Importance Sampling method of Richard and Zhang to obtain variance decompositions derived from an estimated vector autoregressive model. The empirical findings suggest that stock markets tend to show increased volatility spillovers during the crisis period, thus resulting in lesser diversification benefits for investors.     

Oil and stock markets before and after financial crises: A local Gaussian correlation approach

The effect of financial shocks on the cross‐market linkages between oil prices (spot and futures) and stock markets is examined for four major crises. We employ the local Gaussian correlation approach and find that the two markets were regionalized for most of the 1990s and the early 2000s. Flights from stocks to oil occur in all crisis episodes, except the recent global financial crisis. The view that stock and oil markets behave like “a market of one” after the financialization of commodities is further supported by the presence of contagion between US stock markets and all the benchmark oil markets.     

Off the cliff and back? Credit conditions and international trade during the global financial crisis

We study the collapse of international trade flows during the global financial crisis using detailed data on monthly US imports. We show that credit conditions were an important channel through which the crisis affected trade volumes, by exploiting the variation in the cost of capital across countries and over time, as well as the variation in financial vulnerability across sectors. Countries with higher interbank rates and thus tighter credit markets exported less to the US during the peak of the crisis. This effect was especially pronounced in sectors that require extensive external financing, have limited access to trade credit, or have few collateralizable assets. Exports of financially vulnerable industries were thus more sensitive to the cost of external capital than exports of less vulnerable industries, and this sensitivity rose during the financial crisis. The quantitative implications of our estimates for trade volumes highlight the large real effects of financial crises and the potential gains from policy intervention.     

Dynamic Global Linkages of the BRICS Stock Markets with the United States and Europe Under External Crisis Shocks: Implications for Portfolio Risk Forecasting

Crisis shocks often lead to changes in the interdependence across stock markets and thus affect risk assessment and management. This paper investigates the extent to which the global financial crisis of 2008–09, which was triggered by the US subprime crisis in 2007, and the European debt crisis that started at the end of 2009, affects the interdependence of the leading emerging markets of the BRICS countries with those of the United States and Europe. Our empirical analysis makes use of the FIAPARCH model combined with the Dynamic Equicorrelation (DECO‐FIAPARCH), which allows for the estimation of market linkage for a large group of countries as a whole, while controlling for asymmetric volatility and long memory. The results reveal the presence of important changes in the time‐varying linkages of the BRICS stock markets with the US and European ones. In particular, the average linkages have significantly been higher between 2007 and the first half of 2012 than the remaining part of the sample, and there is also evidence of a structural change around the Lehman Brothers collapse. We also show the effects of these stylised facts on portfolio risk assessment and forecasting.     

The COVID-19 pandemic and financial markets in Central Europe: Macroeconomic measures and international policy spillovers

This paper investigates the effects of macroeconomic policy announcements on financial markets in three Central European economies: Czechia, Hungary, and Poland (CE–3). We focus on the unprecedented stabilisation policies implemented from March to December 2020 during the COVID-19 pandemic, including unconventional monetary measures and large stimulus programs. Detailed categories of monetary and fiscal measures are introduced into vector autoregressions with exogenous regressors and dynamic conditional correlations, which we estimate using daily data. This allows us to control for policy spillovers from abroad, as well as global risk factors and pandemic-related variables. We find that, in general, macroeconomic policy measures implemented in the CE–3 countries played an important role in stabilising financial markets during the pandemic. We uncover several notable patterns in the reaction of markets to anti-crisis measures across the region. The impact of the monetary policy announcements on 10-year sovereign bond yields was more substantial than on stock market returns and exchange rate returns. The communication of the unconventional tools proved effective in lowering the bond yields. Interestingly, we document that the effects of non-standard measures for some variables, such as the exchange rate, can be qualitatively different from those resulting from a conventional monetary expansion. Even though the domestic monetary events became more important than the fiscal ones, the latter proved relevant for financial market returns, especially when large-scale immediate fiscal measures and tax deferrals were introduced. We also show that the CE–3 economies were subject to the cross-border transmission of policy announcement effects from the Euro Area and the US, although the magnitude of these effects was smaller than expected and varied across the CE–3 countries.     

Shift‐contagion Vulnerability in the MENA Stock Markets

As part of a broader financial development reform agenda, the Middle East and North Africa (MENA) countries have successfully expanded and revitalised their stock markets over the last decade. Whereas previous contributions have investigated efficiency, international integration and portfolio diversification opportunities, very little is known about these markets’ vulnerability to external financial crises. In this paper, we investigate shift‐contagion to the MENA region using a comprehensive battery of econometric tests for a number of different crises episodes: the 1997 Asian crisis, the 1998 Russian virus and its Brazilian sequel, the 2000 Turkish collapse, the 9/11 turmoil, the 2001 Argentinean crisis, the 2002 Enron/WorldCom scandal and the 2007–09 global financial crisis. We found that Turkey, Israel and Jordan were the most vulnerable markets over the 1997–2009 period, followed by Tunisia, Morocco, Egypt and Lebanon. Our results also highlight heterogeneous but increasing levels of sensitivity to external financial shocks, especially during the recent global financial crisis. From a financial point of view, this suggests that MENA‐based diversification strategies may be relatively inefficient during periods of global turmoil. From an economic point of view, our results suggest that stock market development also involves potential destabilisation costs. This issue should be acknowledged and addressed by policymakers if these countries are to ensure a smooth transition towards international financial integration.     

Financial crises and contagion vulnerability of MENA stock markets

This paper examines contagion vulnerability and the international and regional financial linkages of the MENA stock markets. The degree of vulnerability of those markets to global and regional financial crises will have important bearings on the respective economies' growth rate, and on their ability to diversify international and regional portfolios. Granger causality tests and impulse response functions reveal that while the GCC equity markets still offer international investors portfolio diversification potentials, those markets are relatively less vulnerable to global and regional financial crises. Moreover, even though the remaining MENA stock markets of Egypt, Morocco, and Tunisia have matured and are now financially integrated with the world stock markets, they tend to exhibit more vulnerability to regional and international financial crises. Their vulnerability to international financial crises is due, on the one hand, to weak regional integration, and to greater economic and financial integration with the more advanced economies on the other.     

Immediate responses to financial crises: A focus on US MNE subsidiaries

This paper provides evidence for the immediate or short-term responses to financial crises of US multinational firm (MNE) subsidiaries. Using a real options perspective, we hypothesize that financial crises change the relative value of ‘within-country’ versus ‘across-country’ options for MNE subsidiaries. We suggest that relocating subsidiary output is an effective short-term response to local financial crises. We examine the effects of 83 financial crises (banking, debt and currency crises) on longitudinal data of US MNEs’ subsidiary sales in over 50 countries in the period 1983–2005. Our results show market-switching effects. Particularly in the case of local currency crises we observe a refocus of the MNE's subsidiary local sales toward export markets. The effect is maintained in the occurrence of twin financial crises. These results confirm our expectation that financial crises cause an increase in the value of ‘across-country’ option relative to ‘within-country’ option.     

On the exposure of the BRIC countries to global economic shocks

The financial crisis led to a deep recession in many industrial countries. While large emerging countries recovered relatively quickly, their performance deteriorated in recent years, despite the modest recovery in advanced economies. The higher divergence of business cycles is closely linked to the Chinese economy. During the crisis, the Chinese fiscal stimulus prevented an abrupt decline in GDP growth not only in that country, but also in resource‐rich economies. Due to lower commodity demand, the environment became more challenging for many emerging markets in recent years. This view is supported by Bayesian structural VARs specified for the individual BRIC (Brazil, Russia, India and China) countries. The results reveal a strong impact of the international economy on GDP growth. However, in contrast to the other countries, China plays a crucial role in determining global trade and oil prices. Therefore, the Chinese economy exerts significant spillovers to the other countries under analysis. The change in the Chinese growth strategy puts additional reform pressure especially in countries with abundant natural resources.     

The roles of news and volatility in stock market correlations during the global financial crisis

The global financial crisis has again brought the interdependencies of international financial markets to the fore, particularly during times of financial crises. This paper explores the relative roles of news and volatility in explaining the changes in correlations between national stock markets during the global financial crisis. Our results show that the majority of the correlations are more strongly explained by volatility rather than news. However as the global financial crisis evolves the relative role of news grows in importance.     

The global financial crisis,financial linkages and correlations in returns and volatilities in emerging MENA stock markets

The 2007 United States financial crisis has developed into the most severe worldwide economic crisis since the 1927 Great Depression. In addition to its severe repercussion in North America and the European Union, the crisis has put pressure on emerging markets in general, and the Middle East and North Africa region in particular. For a better understanding of how the crisis affected the MENA region, we focus in this paper on the global and regional financial linkages between MENA stock markets and the more developed financial markets, and on the intra-regional financial linkages between MENA countries' financial markets.     

美国金融危机传导机制的研究

目前,美国金融危机所产生的影响仍未消除,对外开放程度越高的国家受到的影响越严重。金融危机包括货币危机、外债危机、银行业危机以及资本市场危机,四种危机之间相互感染,通过金融、贸易、心理等渠道将其传导到不同的地理空间及市场或领域之中。危机的传导在时间和空间上是同步进行的,并产生"连锁反应",对世界各国的影响极为严重。世界各国应健全金融法规,加强投资者的教育,并加大各国之间的经济交流,以更好的防范金融危机,共谋世界经济平稳健康地发展。     

Was it different the second time? An empirical analysis of contagion during the crises in Greece 2009–15

Over the period between end‐2009 and end‐2015, Greece experienced two discernible financial crises. This paper undertakes a correlation analysis of risk premia to investigate the nature and extent of contagion from these crises to other selected Eurozone countries. A commonly expressed view is that the effects of the second crisis were more muted since the systemic risks were seen by markets as being lower. However, using a rolling correlation model, a Dynamic Conditional Correlation GARCH (DCC‐GARCH) model and a t‐copula model we find that this is not the case. Broadly speaking, the contagion effects of the second crisis were at least as large as those associated with the first one.     

Do global factors impact BRICS stock markets? A quantile regression approach

This paper examines the dependence structure between the emerging stock markets of the BRICS countries and influential global factors. Using the quantile regression approach, our results for the period from September 1997 to September 2013 show that the BRICS stock markets exhibit dependence with the global stock and commodity markets (S&P index, oil, and gold) as well as changes in the U.S. stock market uncertainty (CBOE Volatility Index). This dependence structure is often asymmetric and affected by the onset of the recent global financial crisis. By contrast, the U.S. economic policy uncertainty has no impact on the BRICS stock markets.     

Extreme dependence and risk spillovers between oil and Islamic stock markets

This paper examines the downside and upside risk spillovers and dependence structure between five Islamic stock markets (the Islamic Market World index, Islamic indices of USA, UK, Japan and the Islamic Financials sector index) which are of paramount importance for faith-oriented investors and particpants in the oil market. The results underscore the presence of time-varying lower tail dependence between the oil and Islamic stock markets. Furthermore, we provide supportive evidence of asymmetric down- and up-side risk spillovers from oil to the Islamic stock markets and vice versa. Finally, these asymmetric risk spillovers have significantly increased after the global financial crisis.     

Systemic risk spillovers and the determinants in the stock markets of the Belt and Road countries

We construct time-varying tail risk networks to investigate systemic risk spillovers in the Belt and Road (B&R) stock markets during 2008–2021. Network metrics clearly reflect aggregate risk level and individual risk accumulation for the B&R stock markets under extreme events (e.g., 2008 financial crisis and COVID-19 pandemic). Tail-event driven network quantile regression analysis shows that network impacts of the B&R stock markets under different risk levels are asymmetric and regional heterogeneity. Panel analysis on determinants of systemic risk spillovers shows that cross-border investment and international trade are significant contagion channels while economic freedom is potential driver.     

Global excess liquidity and asset prices in emerging countries: A PVAR approach

The overly accommodating monetary policy is often accused of creating surplus liquidity and bubbles on the asset markets. In particular, it could have contributed to strong capital inflows in emerging countries, which may have had a significant impact on financial stability in these countries, affecting domestic financing conditions and creating a risk of upward pressures on asset prices. We focus in this paper on the impact of global excess liquidity on goods and asset prices for a set of emerging market countries by estimating a panel VAR model. We define first global liquidity and highlight situations of excess liquidity. We then find that excess liquidity at global level has spillover effects on output and price levels in emerging countries. The impact on real estate, commodity and share prices in emerging countries is less clear.     

The Changing Role of Financial Stress,Oil Price,and Gold Price in Financial Contagion among US and BRIC Markets

The objective of this paper is to explore the determining factors behind financial contagion between US and BRIC (Brazil, Russia, India, and China) equity markets. To this end, we investigate the effects of global macroeconomic factors on the time‐varying correlations among these markets obtained by asymmetric dynamic conditional correlation method. Utilizing quantile regression analysis, we examine the determinants of financial contagion at different levels of time‐varying correlations. The results of quantile regression analyses reveal that global financial crisis (GFC) (2008) leads to changes in the dependence structure between dynamic conditional correlations among equity markets and global macroeconomic factors, such as global financial stress, oil prices, and gold prices. Following the GFC, monetary, and fiscal policy changes in the BRIC markets and hence changing macroeconomic risks of these markets are conducive to these changes. Our findings also demonstrate the importance of cross‐market rebalancing channel for information transmission across US and BRIC markets.     

Internationalization of Korean banks during crises: The network view of learning and commitment

This study addresses the effect of crisis on bank internationalization from the perspective of network theory. Employing the internationalization process (IP) model, we particularly examine the role of learning and commitment in overseas expansion for banking services under stable and critical periods. Following the IP model and business network approach, the study develops a theoretical view for analysis of international banks from South Korea. South Korean banks are selected as they experienced two global crises, one in 1998 and the other in 2008. Findings show that while the first crisis in 1998 stopped internationalization, the 2008 crisis stimulated firms to find new markets, especially in developing countries. Different from the studies showing that commitment increases in stable periods and decreases in crisis, this study contributes to the finding that experiencing earlier crises enhances learning and increases commitment needed for expansion and strengthening of the business network.