IDEAS home Printed from https://ideas.repec.org/a/eee/quaeco/v61y2016icp14-28.html
   My bibliography  Save this article

Financial contagion between the US and selected developed and emerging countries: The case of the subprime crisis

Author

Listed:
  • Boubaker, Sabri
  • Jouini, Jamel
  • Lahiani, Amine

Abstract

This paper assesses the contagion between the US equity market and selected developed and emerging stock markets over the period from January 3, 2005 to January 21, 2014 with a particular focus on the contagion risk caused by the subprime crisis of September 2008. The analysis opts for the methodologies of Sander and Kleimeir (2003, Journal of International Financial Markets, Institutions and Money, 13, 171) and Ramlall (2009, International Research Journal of Finance and Economics, 30, 30) based on cointegration techniques and Granger causality tests. It is complemented by examining the impulse response functions and variance decomposition to measure the response time of the financial markets considered to a shock on the US stock market. The study is conducted over both the pre- and post-subprime crisis periods and provides significant evidence of contagion effects between the US stock market and the developed and emerging equity markets after the global financial crisis.

Suggested Citation

  • Boubaker, Sabri & Jouini, Jamel & Lahiani, Amine, 2016. "Financial contagion between the US and selected developed and emerging countries: The case of the subprime crisis," The Quarterly Review of Economics and Finance, Elsevier, vol. 61(C), pages 14-28.
    • Handle: RePEc:eee:quaeco:v:61:y:2016:i:c:p:14-28
    DOI: 10.1016/j.qref.2015.11.001
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S106297691500109X
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.qref.2015.11.001?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Brière, Marie & Chapelle, Ariane & Szafarz, Ariane, 2012. "No contagion, only globalization and flight to quality," Journal of International Money and Finance, Elsevier, vol. 31(6), pages 1729-1744.
    2. King, Mervyn A & Wadhwani, Sushil, 1990. "Transmission of Volatility between Stock Markets," The Review of Financial Studies, Society for Financial Studies, vol. 3(1), pages 5-33.
    3. Taimur Baig & Ilan Goldfajn, 1999. "Financial Market Contagion in the Asian Crisis," IMF Staff Papers, Palgrave Macmillan, vol. 46(2), pages 1-3.
    4. Gjika, Dritan & Horváth, Roman, 2013. "Stock market comovements in Central Europe: Evidence from the asymmetric DCC model," Economic Modelling, Elsevier, vol. 33(C), pages 55-64.
    5. Bertero, Elisabetta & Mayer, Colin, 1990. "Structure and performance: Global interdependence of stock markets around the crash of October 1987," European Economic Review, Elsevier, vol. 34(6), pages 1155-1180, September.
    6. Horvath, Roman & Petrovski, Dragan, 2013. "International stock market integration: Central and South Eastern Europe compared," Economic Systems, Elsevier, vol. 37(1), pages 81-91.
    7. Lorenzo Cappiello & Robert F. Engle & Kevin Sheppard, 2006. "Asymmetric Dynamics in the Correlations of Global Equity and Bond Returns," Journal of Financial Econometrics, Oxford University Press, vol. 4(4), pages 537-572.
    8. Voronkova, Svitlana, 2004. "Equity market integration in Central European emerging markets: A cointegration analysis with shifting regimes," International Review of Financial Analysis, Elsevier, vol. 13(5), pages 633-647.
    9. Roberto Rigobón & Kristin Forbes, 2001. "Contagion in Latin America: Definitions, Measurement, and Policy Implications," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Spring 20), pages 1-46, January.
    10. Kenourgios, Dimitris & Samitas, Aristeidis, 2011. "Equity market integration in emerging Balkan markets," Research in International Business and Finance, Elsevier, vol. 25(3), pages 296-307, September.
    11. Marcello Pericoli & Massimo Sbracia, 2003. "A Primer on Financial Contagion," Journal of Economic Surveys, Wiley Blackwell, vol. 17(4), pages 571-608, September.
    12. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    13. Bialkowski, Jedrzej & Bohl, Martin T. & Serwa, Dobromil, 2006. "Testing for financial spillovers in calm and turbulent periods," The Quarterly Review of Economics and Finance, Elsevier, vol. 46(3), pages 397-412, July.
    14. Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996. "Efficient Tests for an Autoregressive Unit Root," Econometrica, Econometric Society, vol. 64(4), pages 813-836, July.
    15. Sander, Harald & Kleimeier, Stefanie, 2003. "Contagion and causality: an empirical investigation of four Asian crisis episodes," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 13(2), pages 171-186, April.
    16. repec:dau:papers:123456789/7746 is not listed on IDEAS
    17. Sebastian Edwards, 2000. "Interest Rates, Contagion and Capital Controls," NBER Working Papers 7801, National Bureau of Economic Research, Inc.
    18. Samarakoon, Lalith P., 2011. "Stock market interdependence, contagion, and the U.S. financial crisis: The case of emerging and frontier markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 21(5), pages 724-742.
    19. Jose Pagan & Gokce Soydemir, 2000. "On the linkages between equity markets in Latin America," Applied Economics Letters, Taylor & Francis Journals, vol. 7(3), pages 207-210.
    20. Geert Bekaert & Campbell R. Harvey & Angela Ng, 2005. "Market Integration and Contagion," The Journal of Business, University of Chicago Press, vol. 78(1), pages 39-70, January.
    21. Ahmad, Rubi & Rhee, S. Ghon & Wong, Yuen Meng, 2012. "Foreign exchange market efficiency under recent crises: Asia-Pacific focus," Journal of International Money and Finance, Elsevier, vol. 31(6), pages 1574-1592.
    22. Engle, Robert, 2002. "Dynamic Conditional Correlation: A Simple Class of Multivariate Generalized Autoregressive Conditional Heteroskedasticity Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(3), pages 339-350, July.
    23. Rogers, John H., 1994. "Entry barriers and price movements between major and emerging stock markets," Journal of Macroeconomics, Elsevier, vol. 16(2), pages 221-241.
    24. Dooley, Michael & Hutchison, Michael, 2009. "Transmission of the U.S. subprime crisis to emerging markets: Evidence on the decoupling-recoupling hypothesis," Journal of International Money and Finance, Elsevier, vol. 28(8), pages 1331-1349, December.
    25. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    26. Kristin J. Forbes & Roberto Rigobon, 2002. "No Contagion, Only Interdependence: Measuring Stock Market Comovements," Journal of Finance, American Finance Association, vol. 57(5), pages 2223-2261, October.
    27. Gregory, Allan W & Hansen, Bruce E, 1996. "Tests for Cointegration in Models with Regime and Trend Shifts," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 58(3), pages 555-560, August.
    28. Bae, Kee-Hong & Andrew Karolyi, G., 1995. "Good news, band news and international spilovers of stock return volatility between Japan and the U.S," Pacific-Basin Finance Journal, Elsevier, vol. 3(1), pages 144-144, May.
    29. Koutmos, Gregory & Booth, G Geoffrey, 1995. "Asymmetric volatility transmission in international stock markets," Journal of International Money and Finance, Elsevier, vol. 14(6), pages 747-762, December.
    30. Ye, Wuyi & Liu, Xiaoquan & Miao, Baiqi, 2012. "Measuring the subprime crisis contagion: Evidence of change point analysis of copula functions," European Journal of Operational Research, Elsevier, vol. 222(1), pages 96-103.
    31. Huang, Bwo-Nung & Yang, Chin-Wei & Hu, John Wei-Shan, 2000. "Causality and cointegration of stock markets among the United States, Japan and the South China Growth Triangle," International Review of Financial Analysis, Elsevier, vol. 9(3), pages 281-297.
    32. Gregory, Allan W. & Hansen, Bruce E., 1996. "Residual-based tests for cointegration in models with regime shifts," Journal of Econometrics, Elsevier, vol. 70(1), pages 99-126, January.
    33. Eun, Cheol S. & Shim, Sangdal, 1989. "International Transmission of Stock Market Movements," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 24(2), pages 241-256, June.
    34. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-438, July.
    35. Lucey, Brian M. & Voronkova, Svitlana, 2008. "Russian equity market linkages before and after the 1998 crisis: Evidence from stochastic and regime-switching cointegration tests," Journal of International Money and Finance, Elsevier, vol. 27(8), pages 1303-1324, December.
    36. Guidi, Francesco & Ugur, Mehmet, 2014. "An analysis of South-Eastern European stock markets: Evidence on cointegration and portfolio diversification benefits," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 30(C), pages 119-136.
    37. Aggarwal, Raj & Kyaw, NyoNyo A., 2005. "Equity market integration in the NAFTA region: Evidence from unit root and cointegration tests," International Review of Financial Analysis, Elsevier, vol. 14(4), pages 393-406.
    38. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    39. Calvo, Sara & Reinhart, Carmen, 1996. "Capital flows to Latin America : Is there evidence of contagion effects?," Policy Research Working Paper Series 1619, The World Bank.
    40. Martens, Martin & Poon, Ser-Huang, 2001. "Returns synchronization and daily correlation dynamics between international stock markets," Journal of Banking & Finance, Elsevier, vol. 25(10), pages 1805-1827, October.
    41. Ahlgren, Niklas & Antell, Jan, 2010. "Stock market linkages and financial contagion: A cobreaking analysis," The Quarterly Review of Economics and Finance, Elsevier, vol. 50(2), pages 157-166, May.
    42. Morales, Lucía & Andreosso-O'Callaghan, Bernadette, 2014. "The global financial crisis: World market or regional contagion effects?," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 108-131.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Atif HUSSAIN* & Tahir SAEED*, 2016. "Cointegration of Stock Market Returns: A Case of Asian Countries," Pakistan Journal of Applied Economics, Applied Economics Research Centre, vol. 26(2), pages 153-181.
    2. Yarovaya, Larisa & Brzeszczyński, Janusz & Lau, Chi Keung Marco, 2017. "Asymmetry in spillover effects: Evidence for international stock index futures markets," International Review of Financial Analysis, Elsevier, vol. 53(C), pages 94-111.
    3. Mollah, Sabur & Quoreshi, A.M.M. Shahiduzzaman & Zafirov, Goran, 2016. "Equity market contagion during global financial and Eurozone crises: Evidence from a dynamic correlation analysis," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 41(C), pages 151-167.
    4. Yarovaya, Larisa & Lau, Marco Chi Keung, 2016. "Stock market comovements around the Global Financial Crisis: Evidence from the UK, BRICS and MIST markets," Research in International Business and Finance, Elsevier, vol. 37(C), pages 605-619.
    5. Kim, Bong-Han & Kim, Hyeongwoo & Lee, Bong-Soo, 2015. "Spillover effects of the U.S. financial crisis on financial markets in emerging Asian countries," International Review of Economics & Finance, Elsevier, vol. 39(C), pages 192-210.
    6. Pappas, Vasileios & Ingham, Hilary & Izzeldin, Marwan & Steele, Gerry, 2016. "Will the crisis “tear us apart”? Evidence from the EU," International Review of Financial Analysis, Elsevier, vol. 46(C), pages 346-360.
    7. Baumöhl, Eduard & Lyócsa, Štefan, 2014. "Volatility and dynamic conditional correlations of worldwide emerging and frontier markets," Economic Modelling, Elsevier, vol. 38(C), pages 175-183.
    8. Gupta, Rakesh & Guidi, Francesco, 2012. "Cointegration relationship and time varying co-movements among Indian and Asian developed stock markets," International Review of Financial Analysis, Elsevier, vol. 21(C), pages 10-22.
    9. Mahfuzul Haque & Hannarong Shamsub, 2015. "Do Markets Cointegrate after Financial Crises? Evidence from G-20 Stock Markets," IJFS, MDPI, vol. 3(4), pages 1-30, December.
    10. Woon Sau Leung & Nicholas Taylor, 2013. "Testing for contagion: the impact of US structured markets on international financial markets," Chapters, in: Adrian R. Bell & Chris Brooks & Marcel Prokopczuk (ed.), Handbook of Research Methods and Applications in Empirical Finance, chapter 11, pages 256-284, Edward Elgar Publishing.
    11. Boubaker, Sabri & Jouini, Jamel, 2014. "Linkages between emerging and developed equity markets: Empirical evidence in the PMG framework," The North American Journal of Economics and Finance, Elsevier, vol. 29(C), pages 322-335.
    12. Guidi, Francesco & Ugur, Mehmet, 2014. "An analysis of South-Eastern European stock markets: Evidence on cointegration and portfolio diversification benefits," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 30(C), pages 119-136.
    13. Mollah, Sabur & Zafirov, Goran & Quoreshi, AMM Shahiduzzaman, 2014. "Financial Market Contagion during the Global Financial Crisis," Working Papers 2014/05, Blekinge Institute of Technology, Department of Industrial Economics.
    14. Zouheir Mighri & Faysal Mansouri, 2013. "Dynamic Conditional Correlation Analysis of Stock Market Contagion: Evidence from the 2007-2010 Financial Crises," International Journal of Economics and Financial Issues, Econjournals, vol. 3(3), pages 637-661.
    15. Nathan Lael Joseph & Thi Thuy Anh Vo & Asma Mobarek & Sabur Mollah, 2020. "Volatility and asymmetric dependence in Central and East European stock markets," Review of Quantitative Finance and Accounting, Springer, vol. 55(4), pages 1241-1303, November.
    16. Ballester, Laura & Díaz-Mendoza, Ana Carmen & González-Urteaga, Ana, 2019. "A systematic review of sovereign connectedness on emerging economies," International Review of Financial Analysis, Elsevier, vol. 62(C), pages 157-163.
    17. Sewraj, Deeya & Gebka, Bartosz & Anderson, Robert D.J., 2018. "Identifying contagion: A unifying approach," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 55(C), pages 224-240.
    18. Georgios Bampinas & Theodore Panagiotidis, 2017. "Oil and stock markets before and after financial crises: A local Gaussian correlation approach," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 37(12), pages 1179-1204, December.
    19. Chien, Mei-Se & Lee, Chien-Chiang & Hu, Te-Chung & Hu, Hui-Ting, 2015. "Dynamic Asian stock market convergence: Evidence from dynamic cointegration analysis among China and ASEAN-5," Economic Modelling, Elsevier, vol. 51(C), pages 84-98.
    20. Ahmad, Wasim & Sehgal, Sanjay & Bhanumurthy, N.R., 2013. "Eurozone crisis and BRIICKS stock markets: Contagion or market interdependence?," Economic Modelling, Elsevier, vol. 33(C), pages 209-225.

    More about this item

    Keywords

    Contagion effects; Subprime crisis; Capital market interdependence; International portfolio diversification;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • G1 - Financial Economics - - General Financial Markets
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:quaeco:v:61:y:2016:i:c:p:14-28. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620167 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.