Abstract
Article history: Received March 24, 2014 Accepted 20 September 2014 Available online September 24 2014 After financial crisis in 2008, the effect of crisis spread in the world. Many countries were affected quickly and others slowed in a particular mechanism. Using data of TEPIX from Tehran Stock Exchange and DJI from New York stock Exchange as the main indexes of these two markets, this paper reported strong evidence of TEPIX’s dependency on DJI after the crisis in a four-week delay. The index level series were non-stationary; therefore, we employed cointegration analysis and error correction vector autoregressions (VAR) techniques to model the interdependencies. To find the best lag time we used a heuristic method and the results surprisingly were the same as the result of applying a VAR model. The results support the hypothesis that financial stress was transmitted from the U.S to Iran primarily through trade and price channels. © 2014 Growing Science Ltd. All rights reserved. Financial Crisis Transmission Mechanism VAR model Lag-correlation Sliding trend
Highlights
Previous global financial crisis, which is unprecedented scale since the great depression, initiated in the U.S stock markets and passed through economies (Boshoff, 2006)
According to Mesa-Lago and Vidal-Alejandro (2010), the transmission mechanisms from developed to developing economies that were in turn conditioned by domestic factors might attenuate or accentuate the economic and social effects of the recession, this study shows that Iranian economy was affected by 2008 global financial crisis in an specific mechanism
TEPIX is the main index in Tehran Stock Exchange (TSE) and it compares with Dow Jones Indices (DJI) of New York Stock Exchange (NYSE)
Summary
Previous global financial crisis, which is unprecedented scale since the great depression, initiated in the U.S stock markets and passed through economies (Boshoff, 2006). Corsetti et al (2011) documented the transmission of shocks across stock markets and made an analysis on the correlation of financial markets in term of contagion. They showed that sharp falls in stock prices tend to happen in clusters across national markets and covariances between the movement of stock markets frequently increase during crisis periods. Moshirian (2005) discussed this phenomenon that financial market integration had driven by market forces but constrained by regulatory barriers and the level of integration was not uniform across market segments nor was the across time Given this increased integration, under particular mechanism, country-specific financial stress may influence on foreign financial markets. The purpose of this study is to examine stock market linkage between them according to global financial crisis.
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