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The transmission of emerging market shocks to global equity markets

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  • Cuadro Sáez, Lucía
  • Fratzscher, Marcel
  • Thimann, Christian

Abstract

The paper analyses whether, and to what extent, emerging market economies (EMEs) have systemic importance for global financial markets, above and beyond their influence during crises episodes. Using a novel database of exogenous economic and political shocks for 14 systematically relevant EMEs, we find that EME shocks not only have a statistically but also economically significant impact on global equity markets. The economic significance of EME shocks is in particular underlined by their remarkably persistent effects over time. Importantly, EMEs are found to influence global equity markets about just as much in “good” times as in “bad” times, i.e. during crises or periods of financial turbulence. Finally, we detect a large degree of heterogeneity in the transmission of EME shocks to individual countries’ equity markets, stressing the different degrees of financial exposure, which is relatively higher for European equity markets. JEL Classification: F36, F30, G15

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 0724.

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Date of creation: Feb 2007
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Handle: RePEc:ecb:ecbwps:20070724

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Keywords: equity markets; financial area; global financial markets; transmission; United States;

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Citations

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Cited by:
  1. Manganelli, Simone & Wolswijk, Guido, 2007. "Market discipline, financial integration and fiscal rules: what drives spreads in the euro area government bond market?," Working Paper Series 0745, European Central Bank.
  2. Bartosz Gębka & Michail Karoglou, 2013. "Is there life in the old dogs yet? Making break-tests work on financial contagion," Review of Quantitative Finance and Accounting, Springer, vol. 40(3), pages 485-507, April.
  3. Yushi Yoshida, 2009. "Financial crisis, exchange rate and stock market integration," Discussion Papers 38, Kyushu Sangyo University, Faculty of Economics.
  4. Yushi Yoshida, 2010. "Is this time different for Asia?: Evidence from stock Markets," Discussion Papers 40, Kyushu Sangyo University, Faculty of Economics.
  5. Hans J. Blommestein & Javier Santiso, 2007. "New Strategies for Emerging Domestic Sovereign Bond Markets," OECD Development Centre Working Papers 260, OECD Publishing.
  6. Ceylan Onay & Gözde Ünal, 2012. "Cointegration and Extreme Value Analyses of Bovespa and the Istanbul Stock Exchange," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 62(1), pages 66-90, February.

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