Abstract
This paper focuses on the analysis of the 2008 financial crisis and how it affects the global financial markets. We analyze three major markets (US, UK, and ASIA) that are represented by the levels of three broad stock indices S&P 500, FTSE 100 and Hang Seng respectively. Our methodology is based on cointegration analysis and Granger causality test in order to examine the interaction between the markets (information flows). Additionally, we study the volatility transmission based on multivariate GARCH analysis. We find significant changes in information flows before and during the financial crisis.
Highlights
Due to its surprising breadth and intensity, the analysis of the 2008 global financial crisis presents a major challenge for economists and financial experts
This paper focuses on the analysis of the 2008 financial crisis and how it affects the global financial markets
Our methodology is based on cointegration analysis and Granger causality test in order to examine the interaction between the markets
Summary
Due to its surprising breadth and intensity, the analysis of the 2008 global financial crisis presents a major challenge for economists and financial experts. Policymakers consider the definition of key policy responses and institutional rules in order to build mechanisms that will contain cross-market contagion and prevent a reoccurrence of the problem in the future. Most of the recent crises started from emerging markets, which are presumably more sensitive to liquidity shocks because of their underdeveloped and illiquid financial markets and their large public deficits. An important question related to an international financial crisis is the existence of contagion (i.e., the international propagation of country- or region-specific shocks to other parts of the world). According to the more open definition adopted by Forbes and Rigobon [1], contagion is measured as any change in the transmission mechanisms that occurs during a volatile period. Contagion may establish itself by a significant increase in cross-market correlations
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