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Information Propagation Between Equity Markets: The Case Of Bric, Turkey, The Usa, And Germany

Author

Listed:
  • Harald Schmidbauer
  • Angi Roesch
  • Erhan Uluceviz

Abstract

The overall degree of international equity market connectedness has gradually increased over the past two decades. Reflecting the shift in global economic power, it has been recently suggested to pay more attention to the BRICT (Brazil, Russia, India, China, and Turkey) countries. Building on, and methodologically adding to, an established approach to market connectedness, this study makes an effort to assess the connectedness of these markets, together with the US and German equity markets. Our methodological contributions consist of the analysis of information propagation, based on Markov chains and information entropy. We find that the BRICT countries' degree of equity market connectedness has increased substantially since the early 2000s, with different timing which can be related to major international events. Furthermore, in spite of increased Chinese connectedness, a hypothetical shock to the Chinese equity market still has a very low impact on risk levels in other markets, in contrast to shocks in other markets considered here. Nevertheless, a shock to the Chinese equity market creates an information disequilibrium harder to digest by the international market system than a shock to the German or US markets. This analysis permits conclusions concerning the information policy prevalent in markets.

Suggested Citation

  • Harald Schmidbauer & Angi Roesch & Erhan Uluceviz, 2013. "Information Propagation Between Equity Markets: The Case Of Bric, Turkey, The Usa, And Germany," EcoMod2013 5458, EcoMod.
  • Handle: RePEc:ekd:004912:5458
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    References listed on IDEAS

    as
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    4. Bhar, Ramaprasad & Nikolova, Biljana, 2009. "Return, volatility spillovers and dynamic correlation in the BRIC equity markets: An analysis using a bivariate EGARCH framework," Global Finance Journal, Elsevier, vol. 19(3), pages 203-218.
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    Keywords

    BRICT (Brazil; Russia; India; China); USA; Germany; Macroeconometric modeling; Developing countries;
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