Dependencies between Stock Markets During the Period Including the Late-2000s Financial Crisis

Abstract

The aim of the paper is to investigate the dynamics of linkages between stock markets during the period including the late-2000s financial crisis. We are interested in the patterns of the conditional dependence structure during distinct phases of the crisis, as well as in the pre- and post-crisis periods. The basic tool in the performed analysis is a 3-regime Markov-switching copula model applied to pairs of the daily returns on selected representative stock indices. The model enables us to distinguish between regimes without extreme dependence, and ones with tail dependence which can be of asymmetric type. We are thus able to deeply examine the linkages between chosen stock markets, focusing on a comparison of the strength of the tail dependencies during the considered periods.