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This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License
Article
Author(s)
Joanna Olbrys, Elzbieta Majewska
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DOI:10.17265/1537-1506/2014.07.001
Affiliation(s)
Joanna Olbrys, Ph.D., assistant professor, Faculty of Computer Science, Bialystok University of Technology, Bialystok, Poland.
Elzbieta Majewska, Ph.D., assistant professor, Faculty of Mathematics and Computer Science, University of Bialystok, Bialystok, Poland.
ABSTRACT
This paper focuses on a direct quantitative identification of crisis periods in selected emerging stock markets from four continent-based regions of Europe, Latin America, East Asia, and Middle East and North Africa (MENA), in the context of an influence of the 2007 U.S. subprime financial crisis. The 17 emerging stock markets and, for comparison, the U.S. stock market are investigated. A statistical method of dividing market states into bullish and bearish markets, based on monthly logarithmic returns of major stock market indexes, is employed. The analyzed sample period begins in January 2003 and ends in December 2013. As there is no unanimity in the literature about the crisis periods in the continent-based regions, a formal statistical identification of crises is worthwhile to conduct. Furthermore, the effect of increasing cross-market correlations in the crisis compared to the pre-crisis period in the context of contagion is examining. To address this issue, both standard contemporaneous cross-correlations and volatility-adjusted cross-correlations are applied. The results are consistent with the literature and confirm that tests for contagion based on cross-market correlations are problematic due to the bias introduced by changing volatility in market returns. As contagion can be confused with globalization, the globalization tests in the group of international investigated markets are employed. The results generally do not confirm a global world market integration effect, i.e. there is no reason to reject the research hypothesis of no globalization during the 2007-2009 financial crisis.
KEYWORDS
emerging markets, market states, cross-market correlations, contagion, globalization
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