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The transmission of emerging market shocks to global equity markets

Author

Listed:
  • Lucía Cuadro Sáez

    () (Banco de España)

  • Marcel Fratzscher

    () (European Central Bank)

  • Christian Thimann

    () (European Central Bank)

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 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.

Suggested Citation

  • Lucía Cuadro Sáez & Marcel Fratzscher & Christian Thimann, 2007. "The transmission of emerging market shocks to global equity markets," Working Papers 0727, Banco de España;Working Papers Homepage.
  • Handle: RePEc:bde:wpaper:0727
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    File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/07/Fic/dt0727e.pdf
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    References listed on IDEAS

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    1. repec:eee:intfin:v:49:y:2017:i:c:p:115-128 is not listed on IDEAS
    2. Lehkonen, Heikki & Heimonen, Kari, 2014. "Timescale-dependent stock market comovement: BRICs vs. developed markets," Journal of Empirical Finance, Elsevier, vol. 28(C), pages 90-103.
    3. Leoni Eleni Oikonomikou, 2016. "Modeling Financial Market Volatility in Transition Markets: A Multivariate Case," Courant Research Centre: Poverty, Equity and Growth - Discussion Papers 204, Courant Research Centre PEG.
    4. Yushi Yoshida, 2009. "Financial crisis, exchange rate and stock market integration," Discussion Papers 38, 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. Hoffmann, Andreas & Schnabl, Gunther, 2016. "Monetary policies of industrial countries, emerging market credit cycles and feedback effects," Journal of Policy Modeling, Elsevier, vol. 38(5), pages 855-873.
    7. 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.
    8. Alper Gormus, N., 2016. "Do different time-horizons in volatility have any significance for the emerging markets?," Economics Letters, Elsevier, vol. 145(C), pages 29-32.
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    More about this item

    Keywords

    global financial markets; equity markets; transmission; financial integration; shocks; news; emerging market economies; mature economics; euro area; United States;

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F30 - International Economics - - International Finance - - - General
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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