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.     

Market integration and contagion: Evidence from Asian emerging stock and foreign exchange markets

This paper examines whether Asian emerging stock markets (India, Korea, Malaysia, Philippines, Taiwan, and Thailand) have become integrated into world capital markets since their official liberalization dates by estimating and testing a dynamic integrated international capital asset pricing model (ICAPM) in the absence of purchasing power parity (PPP) using an asymmetric multivariate GARCH(1,1)-in-Mean approach. Also examined in this paper is whether there are pure contagion effects between stock and foreign exchange markets for each Asian country during the 1997 Asian crisis. The empirical results show that first, both currency and world market risks are priced and time-varying, suggesting that an international asset pricing model under PPP and constant price of risk might give rise to model misspecification. Second, the stock markets for India, Korea, Malaysia, Philippines, and Thailand were segmented from the world capital markets before their liberalization dates, but all six markets have become fully integrated since then. Third, the market liberalization has reduced the cost of capital and price volatility for most of the countries. Finally, as for the contagion effects, strong positive impact of return shocks originating from the domestic stock market to its foreign exchange market during the crisis is found. This dynamic relationship between stock market and foreign exchange market is consistent with stock-oriented exchange rate models.     

Looking for contagion in currency futures markets

This article tests whether there are pure contagion effects in both conditional means and volatilities among British pound, Canadian dollar, Deutsche mark, and Swiss franc futures markets during the 1992 ERM crisis. A conditional version of international capital asset pricing model (ICAPM) in the absence of purchasing power parity (PPP) is used to control for economic fundamentals. The empirical results indicate that overall there are no mean spillovers among those futures markets, but they are detected during the crisis period. That is, past return shocks originating in any one of the four markets have no impact on the other three markets during the entire sample period, suggesting that these markets are weak‐form efficient. However, this weak‐form market efficiency fails to hold during the market turmoil, especially for British pound and Swiss franc, and the sources of contagion‐in‐mean effects are mainly due to the return shocks originating in three European currency futures markets. As for the contagion‐in‐volatility, it is detected for British pound only because its conditional volatility is influenced by the negative volatility shocks from Canadian dollar, Deutsche mark, and Swiss franc, with Deutsche mark playing the dominant role in generating these shocks. JEL Classifications: C32; F31; G12. © 2003 Wiley Periodicals, Inc. Jrl Fut Mark 23:957–988, 2003     

Derivatives trading,volatility spillover,and regulation: Evidence from the Korean securities markets

Unlike the U.S. and Japanese securities markets, we find new evidence of volatility spillover between index stocks and non‐index stocks following the introductions of index derivatives trading in the Korean securities markets. We further find that the degree of volatility spillover is closely related to the level of market deregulation; significant return volatility spills over from non‐index to index stocks during deregulation period but in the opposite direction during post‐deregulation period. Our empirical results show that the former volatility spillover from non‐index to index stocks can be explained by the transitory contagion effect associated with the 1997 Korean financial crisis and the subsequent market deregulation, whereas the latter volatility spillover from index to non‐index stocks is attributed to the permanent information spillover effect. This latter evidence suggests that the information regarding investors' expectations on the future common market factors is first reflected into the return volatility of index stocks and then transferred to the trading of non‐index stocks against which derivatives are not traded. Our results are robust to different estimation and sample construction methods. © 2009 Wiley Periodicals, Inc. Jrl Fut Mark 29:563–597, 2009     

Evidence of interdependence and contagion using a frequency domain framework

This paper proposes a new measure of contagion, based on the frequency analysis of causality developed recently by Breitung and Candelon [Breitung, J., Candelon, B. 2006. Testing for short and long-run causality: a frequency domain approach, Journal of Econometrics, 12, 363–378.]. This approach handles several of the statistical problems identified in the literature. It also permits clear differentiation between temporary and permanent shifts in cross-market linkages: the first case is contagion while the second one is simply a measure of interdependence among markets. With this new approach, we examine the “Tequila” and Asian crises and find evidence of contagion for both. During the Asian crisis, higher interdependence has also contributed to the diffusion of the crisis in Asia.     

Decoupling and Contagion: The Special Case of the Eurozone Sovereign Debt Crisis

This paper demonstrates that the Eurozone sovereign debt crisis constitutes a special case in the contagion literature with general implications. Perfectly correlated bond markets imply that contagion can only occur if there is a decoupling to lower correlation levels with increased idiosyncratic shocks leading to more severe but less systemic spillovers. This theoretical prediction is fully supported by the empirical analysis. We also show that dynamic coexceedance estimates provide a more robust and more general picture of contagion than correlation‐based tests. Coexceedances identify only one major incidence of contagion that affected five periphery Eurozone countries in May 2010 and coincided with flight to quality from the periphery to the core and the 2010 “flash crash” in US equity markets.     

Industry and country factors in emerging market returns: Did the Asian crisis make a difference?

Should investors diversify across emerging stock markets or across industries to achieve improvements in their risk–return tradeoffs especially during financial crisis periods? We examine the issue using individual firm data from a selection of emerging markets and including the period of the 1997 Asian financial crisis. We find that country effects were the dominant force behind the low co-movements among emerging stock market returns. There is evidence of increased industry effects beginning at the time of the Asian financial crisis, but this may have been a temporary phenomenon associated with contagion effects during the crisis.     

中国证券市场波动的区制关联性

应用单变量和二元向量SW-ARCH模型,本文发现我国证券市场收益率波动具有明显的"区制转移"特征,可以将其分为"高波动"和"低波动"两个区制.在"高波动区制"下,沪深两市间具有明显的波动"溢出"和"传染"特征,市场整体风险强;相反,在"低波动区制"下,市场间主要表现"低系统风险"特征,负相关的波动关联性使证券市场具有较强的风险分散功能和较高的资金配置效率.     

基于Copula理论的金融资产传染效应研究

某一突发性金融事件可能使整个金融市场间的联动程度显著增强,并对一定区域乃至世界范围的经济体系产生传染效应。对此,采用Copula函数方法,通过t-GARCH(1,1)模型对资产收益时序进行过滤,运用非参数估计,分析多变量之间相关结构及尾部相关性的变化进而考察变量间的传染效应。通过对美国次贷危机前后多国证券市场的实证分析,结果表明次贷危机后,美国标准普尔指数与代表性的亚洲证券市场间的联动性显著加强,次贷危机对亚洲股市存在传染效应。     

Dependence dynamics of stock markets during COVID-19

Stock markets have exhibited increased returns connectedness during the COVID-19 period. We examine the returns dependence among 42 stock markets classified under various emerging and developed groupings. We apply several dependence measures to examine the returns connectedness among the markets. Our results show that stock markets from the G-7 and Emerging Frontier and Asian (EFA) region exhibit high connectedness with other international markets, while Middle East and North African (MENA) and Latin American (LA) stock markets offer high diversification opportunities through low returns connectedness. The returns coherence of Central and East European (CEE) and G-7 markets increase significantly during the COVID-19 period which supports the hypothesis of contagion. However, during the pandemic MENA stock markets (excluding Greece) and most EFA markets (excluding China, Singapore and Korea) remain less cointegrated with other international equity markets. Our results have implications for individual and institutional investors, fund managers and other financial market stakeholders.     

股票市场周日历效应传导关系研究

以上证综指、深证成指、恒生指数、日经225指数四种指数为研究对象,实证研究四个股市的周日历效应及其传导关系。研究发现,上证综指在一周中有三天存在周日历效应,周二负效应和周三、周五正效应;深证成指在周三和周五两天存在正效应;恒生指数和日经225指数则分别在周五和周一存在正效应和负效应。上证综指的周三、周五正效应与深证成指的周三、周五正效应互相传导;上证综指与恒生指数的周五正效应互相传导;深证成指与恒生指数的周五正效应亦互相传导;日经225指数与其他三种指数的周日历效应却不存在传导关系。     

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.     

Interdependence of Major Exchange Rates in Ghana: A Wavelet Coherence Analysis

ABSTRACT

We have employed the three-dimensional continuous Morlet wavelet transform methodology to explore the co-movement amongst the returns of four major currencies in Ghana (dollar, euro, pound, and yen) for the period May 1999 to February 2018. The analysis reveals that the dynamics of the interdependence of the currencies is time-varying and heterogeneous. Our empirical findings demonstrate that the currencies are closely linked or interconnected. The lead–lag relationships between the returns of the exchange rates established that volatilities in the euro and yen significantly affect movements in the other currencies in daily and weekly exchange rate returns. The presence of lead–lag effects and stronger co-movements at short-run fluctuations may induce arbitrage and diversification opportunities to investors, albeit with limited space. The differences in the co-movements of returns and the evidence of contagion among the foreign exchange markets provide reliable incentive to the monetary authorities for unflinching strides to halt the speeding exchange rates.     

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.     

The persistence of emerging market equity flows

The portfolio flows of institutional investors have been found to be highly persistent across countries and individual investment funds. This paper investigates the source of this persistence in emerging market equities. We employ the decomposition methodology in NBER Working Paper no. 9079 (July 2002), which decomposes the persistence of flows into four components: (i) own-country, own-fund persistence (which might arise from informed trading within each country by individual funds); (ii) own-country, cross-fund persistence (which might arise from asynchronicities across funds); (iii) cross-country, own-fund persistence (which might arise from asynchonicities within a fund) and (iv) cross-country, cross-fund persistence (which might arise from other reaction lags—such as contagion—across both countries and funds). We find evidence that all four components are positive in emerging markets. Our results differ from those in developed countries, in that we attribute approximately 10–20% of total persistence to cross-country effects (iii) and (iv). These findings are consistent with stories of contagion, which suggest that demand shifts move predictably from one country to another. They cannot easily be explained by informed trading alone or by wealth effects.     

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.     

Dynamic linkage between the Chinese and global stock markets: A normal mixture approach

The paper provides an empirical framework for analyzing the dynamic linkage between Chinese and thirty major stock markets globally. In doing so, we employ the bivariate normal mixture model, a weighted average of two normal distributions that can reveal both the degree and structure of dependence between markets. We show that the level of dependence strengthened since 2004 in general, whereas the contagion effects spread heterogeneously during the global financial crisis. We also examine potential factors that affect the stability of the linkage by capturing regime switching behavior. The results suggest that business cycle synchrony plays a significant role in increasing the instability of dependence between the Chinese and global stock markets, while the impact of asynchrony is negligible. Additionally, we observe increased dependence and unstable structure, associated with the implementation of China's capital market liberalization policies and RMB exchange rate reform.     

Sovereign bond spreads determinants in Latin American countries: Before and during the XXI financial crisis

This paper aims to identify the main determinants of sovereign bond spreads in seven Latin American countries and verify the existence of contagion effect over these markets during the last financial crisis. We apply a panel data framework and find that the inflation, terms of trade ratio and the external debt and international reserves (both as percentage of GDP) are key drivers of sovereign bond spreads. Moreover, we test the crisis impact over emerging economies. Our results show that the crisis has a statistically significant impact on the EMBIG spreads since 2008.     

希腊债务危机及其对世界经济复苏的冲击

2010年2月初以来,希腊等国的债务危机开始进入人们的视野,并引发欧盟金融市场震荡。希腊等国的债务危机具有重要的历史原因和传染效应,它不仅源于财政赤字过高,而且缺乏独立的货币政策,但最根本的原因是希腊的经济失去了"生产性"。我国应未雨绸缪,提早做好准备,主动积极应对希腊等国的主权债务危机。     

COVID-19 and tail risk contagion across commodity futures markets

This paper examines the impact of COVID-19 on tail risk contagion across commodity futures markets using a copula-based network method. We document a significant increase in the lower and upper tail contagiousness of commodities following the COVID-19 outbreak. Contagion shows an obvious clustering characteristic, that is, there is higher tail risk connectedness between commodities in the same category. Agricultural commodities are significantly less contagious than metals and energy commodities; soft commodities in particular can offer investors significant diversification benefits. There are several hub commodities in the contagion network, chief among them copper, which are good transmitters of shocks and should be treated with caution by investors and regulators. Although tail risk and contagiousness of individual commodities increase together during the pandemic, we find a negative cross-sectional relationship between tail risk and contagiousness, that is, commodities with high tail risk are not necessarily highly contagious and may even be less so.