International stock market co-movements following US financial globalization

Chai Liang Huang

International Review of Economics & Finance, 2020, vol. 69, issue C, 788-814

Abstract: In this paper, I propose a novel hypothesis to examine whether financial globalization was the economic cause of cross-market co-movement and crisis propagation before and after the global financial crisis; this has been an unsolved puzzle until today. The hypothesis suggests that it is the global outreach of the crisis-originating country, rather than the global outreach of the crisis-infected countries, that caused cross-country co-movement and crisis spread of 2008 crisis. Using data on 59 countries from 2003 to 2013, I present evidence consistent with the blast propagation hypothesis and find that foreign direct investment and foreign portfolio investment were two important channels for cross-market co-movement and global propagation of the crisis before and after crisis. These findings can help governments create international coordination programs to limit crisis propagation in the future.

Keywords: Foreign direct investment; Foreigsn portfolio investment; Financial globalization; Crisis transmission; Comovement; Global financial crisis (search for similar items in EconPapers)
JEL-codes: F62 F65 G15 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:69:y:2020:i:c:p:788-814

DOI: 10.1016/j.iref.2020.06.009

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