Crises and Latent Structure in the Global Stock Market

Gagari Chakrabarti and Chitrakalpa Sen
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Gagari Chakrabarti: Presidency University
Chitrakalpa Sen: G D Goenka World Institute

Chapter Chapter 3 in Anatomy of Global Stock Market Crashes, 2012, pp 27-47 from Springer

Abstract: Abstract This chapter analyzes the stock market dynamics by exploring the latent structure in the global market, by classifying constituent markets in different categories. Once the structure is determined, the study attempts to answer a set of crucial and related questions namely, whether and how regional shocks lead to or transmit into global shock; in case of a purely regional shock, how do the regional markets behave? in case of a global shock, what is the nature of inter-regional and intra-regional stock market dynamics? And, finally, what is the source of volatility in these markets? The first stock market cycle has not been ‘global’ in true sense and was dominated by a single trend set by the combined group of the European and the American markets. The second phase was characterized by three distinct, dissociated structures. The European markets became the dominant group followed by the Asian and the American markets. Further presence of not so robust intra-regional associations offers immense scope for effective regional and global portfolio diversification. However, the fact that volatility has been consistently endogenous to each of these markets might warn us about the inherent instability of the global stock market.

Keywords: Exploratory factor analysis; Dependence analysis; Granger causality; Latent structure; Stock market association; Portfolio diversification (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:spr:spbchp:978-81-322-0463-3_3

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DOI: 10.1007/978-81-322-0463-3_3

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