Global and regional linkages across market cycles: evidence from partial correlations in a network framework

Using a novel approach, partial correlations within a complex network framework, we examine the degree of globalization and regionalization of stock market linkages and how these linkages vary across different economic or market cycles. Our results show that geography influences network linkages differently across economic cycles. During normal times, regional factors shape market linkages; however, during periods of turbulence, global rather than regional factors drive the linkages. The network traffic also increases during times of turmoil, but contrary to previous results, we do not find a consistent or overwhelming increase in positive linkages between markets. Also, contrary to expectations, financial centres such as the US, China, Japan, and the UK command a greater regional rather than global influence. Our findings have implications for asset pricing and policy decision making.