Financial crises and dynamic linkages across international stock and currency markets |
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| Institution: | 1. Department of Economics, Universidade de Santiago de Compostela, Santiago de Compostela, Spain;2. Post-Graduate Programme in Management, UNIFACS, Rúa Dr. José Peroba 251, 41770-235 Salvador, Brazil;3. Dipartimento di Statistica, Informatica, Applicazioni “G. Parenti”, Università di Firenze, Italy;1. School of Economics and Management, Beihang University, Beijing, China;2. School of Finance, Central University of Finance and Economics, Beijing, China;1. Department of Economics, Universidade Católica de Brasília, SGAN 916, Módulo B, Avenida W5, Brasília, DF, Brazil;2. Banco Central do Brasil, SBS, Quadra 3, Bloco B, Asa Sul, Brasília, DF, Brazil;3. Universidade de Brasília, Campus Universitário Darcy Ribeiro, Brasília, DF, Brazil;4. FGV/EPGE – Escola Brasileira de Economia e Finanças, Graduate School of Economics, Praia de Botafogo 190, Rio de Janeiro, RJ, Brazil;1. Institute of Economic Studies, Charles University in Prague, Opletalova 26, 110 00 Prague, Czech Republic;2. The Czech Academy of Sciences, Institute of Information Theory and Automation, Pod Vodarenskou Vezi 4, 182 00 Prague, Czech Republic;1. Discipline of Finance, The University of Sydney, Australia;2. Department of Law and Economics, Darmstadt University of Technology, Germany;3. Macquarie Graduate School of Management, Macquarie University, Australia |
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| Abstract: | This paper investigates contagion across stock and currency markets of China, Eurozone, India, Japan and US during global financial crisis and Eurozone crisis. The crisis periods are selected using Markov-switching models for US and Eurozone markets. We, then, utilize the DCC-GARCH model to estimate conditional correlation among the assets and test for contagion/flight to quality effects during the crises. The results show significant contagion as well as flight to quality effects both across and within asset classes. We examine the impact of financial stress index on the correlation across markets and find that portfolio diversification benefits for equity markets may be non-existent. |
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