IDEAS home Printed from https://ideas.repec.org/a/gam/jijfss/v3y2015i4p557-586d60348.html
   My bibliography  Save this article

Do Markets Cointegrate after Financial Crises? Evidence from G-20 Stock Markets

Author

Listed:
  • Mahfuzul Haque

    () (Department of Accounting, Finance, Insurance and Risk Management, Scott College of Business, Indiana State University, Terre Haute, IN 47809, USA)

  • Hannarong Shamsub

    () (Thailand Institute of Nuclear Technology (Public Organization), Ministry of Science and Technology, 16 Vibhavadi Rangsit Rd, Ladyao, Chatuchak, Bangkok 10900, Thailand)

Abstract

The results of the single-equation cointegration tests indicate that patterns of cointegration in the two main and four sub-periods are not homogeneous. Two key findings emerge from the study. First, fewer stock markets cointegrated with S&P 500 during the crisis period than they did during the pre-crisis. In other words, as the 2008 financial crisis deepened, S&P 500 and G-20 stock indices moved towards less cointegration. The decreasing number of cointegrating relationships implies that the U.S. stock markets and other G-20 markets have experienced different driving forces since the start of the U.S. crisis. Second, among those markets that are cointegrated with S&P 500, they happened to be deeply affected by S&P and the shocks emerging from it. The 2007–2009 financial crises can be considered a structural break in the long-run relationship and may have resulted from effective joint intervention/responses taken by members of G-20 nations.

Suggested Citation

  • Mahfuzul Haque & Hannarong Shamsub, 2015. "Do Markets Cointegrate after Financial Crises? Evidence from G-20 Stock Markets," International Journal of Financial Studies, MDPI, Open Access Journal, vol. 3(4), pages 1-30, December.
  • Handle: RePEc:gam:jijfss:v:3:y:2015:i:4:p:557-586:d:60348
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2227-7072/3/4/557/pdf
    Download Restriction: no

    File URL: https://www.mdpi.com/2227-7072/3/4/557/
    Download Restriction: no

    References listed on IDEAS

    as
    1. Mendoza, Enrique G. & Quadrini, Vincenzo, 2010. "Financial globalization, financial crises and contagion," Journal of Monetary Economics, Elsevier, vol. 57(1), pages 24-39, January.
    2. MacKinnon, James G & Haug, Alfred A & Michelis, Leo, 1999. "Numerical Distribution Functions of Likelihood Ratio Tests for Cointegration," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(5), pages 563-577, Sept.-Oct.
    3. King, Mervyn A & Wadhwani, Sushil, 1990. "Transmission of Volatility between Stock Markets," Review of Financial Studies, Society for Financial Studies, vol. 3(1), pages 5-33.
    4. Nicola Gennaioli & Andrei Shleifer & Robert Vishny, 2015. "Neglected Risks: The Psychology of Financial Crises," American Economic Review, American Economic Association, vol. 105(5), pages 310-314, May.
    5. Fratzscher, Marcel, 2012. "Capital flows, push versus pull factors and the global financial crisis," Journal of International Economics, Elsevier, vol. 88(2), pages 341-356.
    6. Kam C. Chan & Benton E. Gup & Ming-Shiun Pan, 1997. "International Stock Market Efficiency and Integration: A Study of Eighteen Nations," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 24(6), pages 803-813.
    7. Carmen M. Reinhart & Kenneth S. Rogoff, 2014. "Recovery from Financial Crises: Evidence from 100 Episodes," American Economic Review, American Economic Association, vol. 104(5), pages 50-55, May.
    8. Marcello Pericoli & Massimo Sbracia, 2003. "A Primer on Financial Contagion," Journal of Economic Surveys, Wiley Blackwell, vol. 17(4), pages 571-608, September.
    9. Faten Ben Slimane & Mohamed Mehanaoui & Irfan Akbar Kazi, 2013. "How Does the Financial Crisis Affect Volatility Behavior and Transmission Among European Stock Markets?," International Journal of Financial Studies, MDPI, Open Access Journal, vol. 1(3), pages 1-21, August.
    10. Sheng, Hsiao-Ching & Tu, Anthony H., 2000. "A study of cointegration and variance decomposition among national equity indices before and during the period of the Asian financial crisis," Journal of Multinational Financial Management, Elsevier, vol. 10(3-4), pages 345-365, December.
    11. Corsetti, Giancarlo & Pesenti, Paolo & Roubini, Nouriel, 1999. "What caused the Asian currency and financial crisis?," Japan and the World Economy, Elsevier, vol. 11(3), pages 305-373, October.
    12. Taylor, Mark P & Tonks, Ian, 1989. "The Internationalisation of Stock Markets and the Abolition of U.K. Exchange Control," The Review of Economics and Statistics, MIT Press, vol. 71(2), pages 332-336, May.
    13. Wasim Ahmad & N.R. Bhanumurthy & Sanjay Sehgal, 2014. "The Eurozone crisis and its contagion effects on the European stock markets," Studies in Economics and Finance, Emerald Group Publishing, vol. 31(3), pages 325-352, July.
    14. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
    15. Masih, Abul M. M. & Masih, Rumi, 1997. "Dynamic linkages and the propagation mechanism driving major international stock markets: An analysis of the pre- and post-crash eras," The Quarterly Review of Economics and Finance, Elsevier, vol. 37(4), pages 859-885.
    16. Gregory, Allan W. & Hansen, Bruce E., 1996. "Residual-based tests for cointegration in models with regime shifts," Journal of Econometrics, Elsevier, vol. 70(1), pages 99-126, January.
    17. Kasa, Kenneth, 1992. "Common stochastic trends in international stock markets," Journal of Monetary Economics, Elsevier, vol. 29(1), pages 95-124, February.
    18. Jian Yang & Moosa M. Khan & Lucille Pointer, 2003. "Increasing Integration Between the United States and Other International Stock Markets? : A Recursive Cointegration Analysis," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 39(6), pages 39-53, November.
    19. Gregory, Allan W. & Hansen, Bruce E., 1996. "Residual-based tests for cointegration in models with regime shifts," Journal of Econometrics, Elsevier, vol. 70(1), pages 99-126, January.
    20. Kristin J. Forbes & Roberto Rigobon, 2002. "No Contagion, Only Interdependence: Measuring Stock Market Comovements," Journal of Finance, American Finance Association, vol. 57(5), pages 2223-2261, October.
    21. Dornbusch, Rudiger & Park, Yung Chul & Claessens, Stijn, 2000. "Contagion: Understanding How It Spreads," World Bank Research Observer, World Bank Group, vol. 15(2), pages 177-197, August.
    22. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    23. Rangvid, Jesper, 2001. "Increasing convergence among European stock markets?: A recursive common stochastic trends analysis," Economics Letters, Elsevier, vol. 71(3), pages 383-389, June.
    24. repec:hrv:faseco:33077926 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    financial crises; euro crises; stock markets-developed and developing; cointegration; vector auto regression; granger causality and variance decomposition;

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance
    • F2 - International Economics - - International Factor Movements and International Business
    • F3 - International Economics - - International Finance
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jijfss:v:3:y:2015:i:4:p:557-586:d:60348. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (XML Conversion Team). General contact details of provider: https://www.mdpi.com/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.