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Equity market contagion during the global financial crisis: Evidence from the world's eight largest economies

Mardi Dungey () and Dinesh Gajurel ()

Economic Systems, 2014, vol. 38, issue 2, 161-177

Abstract: The global financial crisis (2007–2009) saw sharp declines in stock markets around the world, affecting both advanced and emerging markets. In this paper we test for the existence of equity market contagion originating from the US to advanced and emerging markets during the crisis period. Using a latent factor model, we provide strong evidence of contagion effects in both advanced and emerging equity markets. In the aggregate equity market indices, contagion from the US explains a large portion of the variance in stock returns in both advanced and emerging markets. However, in the financial sector indices we find less evidence of contagion than in the aggregate indices, and this is particularly the case for the advanced markets. The results suggest that contagion effects are not strongly related to high levels of global integration.

Keywords: Global financial crises; Financial contagion; Financial markets (search for similar items in EconPapers)
JEL-codes: F30 G01 G12 G15 G20 (search for similar items in EconPapers)
Date: 2014
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Working Paper: Equity Market Contagion during the Global Financial Crisis: Evidence from the World’s Eight Largest Economies (2013) Downloads
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