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Interdependence of Stock Markets Before and After the Global Financial Crisis of 2007

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  • Boulis Ibrahim
  • Janusz Brzeszczynski

Abstract

In this paper we analyse the evolution of interdependence and influence of major international stock markets (New York, London and Tokyo) before and after the Global Financial Crisis (GFC) of 2007. Using the framework of the Foreign Information Transmission (FIT) model of Ibrahim and Brzeszczynski (2009) we investigate first the direction and strength of simple meteor shower effects across those three markets and then focus our attention on other factors which may impact on the relations between the largest stock trading centres, namely: differentials in trading volume, differentials in stock price volatility and interest rate differentials. The results are robust to different models’ specifications and they clearly indicate that the role of the US market as the influencer of the stock price movements in other markets has weakened after the GFC in 2007 while the role of the other two trading centres in the UK and Japan has strengthened. Our findings are consistent with the explanation related to the shift in balance of economic powers between countries.

Suggested Citation

  • Boulis Ibrahim & Janusz Brzeszczynski, 2013. "Interdependence of Stock Markets Before and After the Global Financial Crisis of 2007," CFI Discussion Papers 1305, Centre for Finance and Investment, Heriot Watt University.
    • Handle: RePEc:hwe:cfidps:1305
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    More about this item

    Keywords

    stock markets interdependence; meteor shower effects; Global Financial Crisis (GFC); Foreign Information Transmission (FIT) model;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G01 - Financial Economics - - General - - - Financial Crises
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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