Contagion risk in Equity Markets during Financial Crises and COVID-19: A comparison of developed and emerging markets

Paul-Francois Muzindutsi, Akita Sheodin, Joshua Moodley, Khmera Moodley, Mayuri Naidoo, Purusha Ramjiyavan, Rinay Moonsamy, Tiffany Atalia Pillay and Fikile Dube
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Paul-Francois Muzindutsi: University of KwaZulu-Natal, South Africa
Akita Sheodin: University of KwaZulu-Natal, South Africa
Joshua Moodley: University of KwaZulu-Natal, South Africa
Khmera Moodley: University of KwaZulu-Natal, South Africa
Mayuri Naidoo: University of KwaZulu-Natal, South Africa
Purusha Ramjiyavan: University of KwaZulu-Natal, South Africa
Rinay Moonsamy: University of KwaZulu-Natal, South Africa
Tiffany Atalia Pillay: University of KwaZulu-Natal, South Africa
Fikile Dube: University of the Western Cape, South Africa

Scientific Annals of Economics and Business (continues Analele Stiintifice), 2022, vol. 69, issue 4, 615 - 629

Abstract: This study compared the impact of the Global Financial Crisis (GFC) and the COVID-19 pandemic on financial market contagion between developed and emerging markets. A DCC-GARCH model was employed to test the contagion effects of developed and emerging markets using weekly returns for the S&P 500 (US), FTSE-100 (UK), ASX 200 (AUS), IBOVESPA (BRA), BSE SENSEX (IND) and BVM IPC (MEX). The results showed that there was a persuasive case made for the integration of markets for efficient financial systems. However, a crisis occurring in one market holds significant repercussions for any of the connected markets. The findings show that the COVID-19 pandemic affected all the markets more severely than the GFC and contagion effects were more pronounced in emerging markets than in developed markets during the GFC and the pandemic. Consequently, policy makers in emerging markets should implement policies that reduce external vulnerabilities and improve their markets’ stability to reduce the impact of contagion.

Keywords: contagion; financial crisis; COVID-19; DCC-GARCH model; internationalization. (search for similar items in EconPapers)
Date: 2022
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