Connectivity in Global Stock Markets during Financial Crisis
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This study analyzes the co-movement and causality of continental and intercontinental stock prices during the times of financial crisis. The co-movement of stock price-earnings ratios in each continent is analyzed and significant increase in co-movement during the times of financial crisis is verified. In addition, time-series data are analyzed by the following methods: unit root time series, co-integration, vector autoregressive (VAR) model, impulse response, forecast error variance decomposition, and Granger causality. The results show a significant increase in Granger causality of intercontinental price-earnings ratios during the times of financial crisis. An intercontinental path of impulse transfer is also identified during financial crises. These analyses can assist in controlling the risks of the international crises and help investors design effective investment strategies.
Abstract
This study analyzes the co-movement and causality of continental and intercontinental stock prices during the times of financial crisis. The co-movement of stock price-earnings ratios in each continent is analyzed and significant increase in co-movement during the times of financial crisis is verified. In addition, time-series data are analyzed by the following methods: unit root time series, co-integration, vector autoregressive (VAR) model, impulse response, forecast error variance decomposition, and Granger causality. The results show a significant increase in Granger causality of intercontinental price-earnings ratios during the times of financial crisis. An intercontinental path of impulse transfer is also identified during financial crises. These analyses can assist in controlling the risks of the international crises and help investors design effective investment strategies.
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