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Global, regional, and country-specific components of financial market indicators

Author

Listed:
  • Zalán Kocsis

    (Magyar Nemzeti Bank (MNB, the central bank of Hungary), Budapest, Hungary)

Abstract

This paper studies the global, regional, and country-specific components of four key financial market indicators: sovereign CDS spreads, equity indices, exchange rates, and EMBI Global bond spreads. In all four markets, the results support the findings of the literature of a significant global component, but also point out the importance of regional correlations. Variance decompositions point to roughly a third of variance explained by both global and country-specific components in each of the four analysed financial markets, although there is considerable cross-country heterogeneity in this respect. The global factors of indicators are correlated across asset classes, but the market- and country-specific components of indicators are still significantly large to suggest diversification benefits of both multi-asset and multi-country portfolios. An application of the factor model suggests that the link between Central Eastern European and Euro zone periphery markets is stronger and more direct in the case of equity indices than in the case of sovereign CDS spreads.

Suggested Citation

  • Zalán Kocsis, 2014. "Global, regional, and country-specific components of financial market indicators," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 64(supplemen), pages 81-110, November.
    • Handle: RePEc:aka:aoecon:v:64:y:2014:i:supplement1:p:81-110
    Note: I would like to thank Martín Saldias and Levente Pápa for being discussants of previous versions and the comments of the two anonymous referees of the current publication. I am also grateful for suggestions and support by colleagues at MNB, in particular, Csaba Csávás, Szilárd Erhart, Dániel Horváth, and Norbert M. Kiss, as well as for the comments of András Fülöp and Zoltán Reppa. The paper benefited from comments of experts of the national central
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    Citations

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    Cited by:

    1. Harman Preet Singh & Ajay Singh & Fakhre Alam & Vikas Agrawal, 2022. "Impact of Sustainable Development Goals on Economic Growth in Saudi Arabia: Role of Education and Training," Sustainability, MDPI, vol. 14(21), pages 1-25, October.
    2. Adnan Kasman & Kamila Mekenbayeva, 2016. "Technical Efficiency and Total Factor Productivity in the Kazakh Banking Industry," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 66(4), pages 685-709, December.
    3. Kliber, Agata & Płuciennik, Piotr, 2017. "Euro or not? Vulnerability of Czech and Slovak economies to regional and international turmoil," Economic Modelling, Elsevier, vol. 60(C), pages 313-323.
    4. Kocsis, Zalan & Monostori, Zoltan, 2016. "The role of country-specific fundamentals in sovereign CDS spreads: Eastern European experiences," Emerging Markets Review, Elsevier, vol. 27(C), pages 140-168.

    More about this item

    Keywords

    variance decomposition; factor analysis; Procrustes rotation; spillover; cross-country correlations; cross-asset correlations;
    All these keywords.

    JEL classification:

    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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