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International stock market co-movements following US financial globalization

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  • Huang, Chai Liang
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.

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  • Huang, Chai Liang, 2020. "International stock market co-movements following US financial globalization," International Review of Economics & Finance, Elsevier, vol. 69(C), pages 788-814.
    • Handle: RePEc:eee:reveco:v:69:y:2020:i:c:p:788-814
    DOI: 10.1016/j.iref.2020.06.009
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    2. Jian, Zhihong & Li, Xupei, 2021. "Skewness-based market integration: A systemic risk measure across international equity markets," International Review of Financial Analysis, Elsevier, vol. 74(C).
    3. Shengnan Lv & Zeshui Xu & Xuecheng Fan & Yong Qin & Marinko Skare, 2023. "The mean reversion/persistence of financial cycles: Empirical evidence for 24 countries worldwide," Equilibrium. Quarterly Journal of Economics and Economic Policy, Institute of Economic Research, vol. 18(1), pages 11-47, March.
    4. Sahabuddin, Mohammad & Muhammad, Junaina & Yahya, Mohamed Hisham & Mohammed Shah, Sabarina, 2020. "Co-movements between Islamic and Conventional Stock Markets: An Empirical Evidence," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 54(3), pages 27-40.
    5. Shi, Yujie, 2022. "What influences stock market co-movements between China and its Asia-Pacific trading partners after the Global Financial Crisis?," Pacific-Basin Finance Journal, Elsevier, vol. 72(C).

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    More about this item

    Keywords

    Foreign direct investment; Foreigsn portfolio investment; Financial globalization; Crisis transmission; Comovement; Global financial crisis;
    All these keywords.

    JEL classification:

    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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