Equity Market Contagion During the Global Financial Crisis: Evidence from the World's Eight Largest Economies

Posted: 29 Oct 2015

See all articles by Mardi Dungey

Mardi Dungey

University of Cambridge - Cambridge Endowment for Research in Finance (CERF)

Dinesh Gajurel

University of New Brunswick - Fredericton; University of Tasmania, Tasmanian School of Business and Economics; Financial Research Network (FIRN)

Multiple version iconThere are 2 versions of this paper

Date Written: 2014

Abstract

The global financial crisis (2007-2009) saw sharp declines in stock markets around the world, affecting both advanced and emerging markets. In this paper we test for the existence of equity market contagion originating from the US to advanced and emerging markets during the crisis period. Using a latent factor model, we provide strong evidence of contagion effects in both advanced and emerging equity markets. In the aggregate equity market indices, contagion from the US explains a large portion of the variance in stock returns in both advanced and emerging markets. However, in the financial sector indices we find less evidence of contagion than in the aggregate indices, and this is particularly the case for the advanced markets. The results suggest that contagion effects are not strongly related to high levels of global integration.

Keywords: Global financial crises, Financial contagion, Financial markets

JEL Classification: F30, G01, G12, G15, G20

Suggested Citation

Dungey, Mardi and Gajurel, Dinesh, Equity Market Contagion During the Global Financial Crisis: Evidence from the World's Eight Largest Economies (2014). Economic Systems, Vol. 38, No. 2, 2014, Available at SSRN: https://ssrn.com/abstract=2682425

Mardi Dungey

University of Cambridge - Cambridge Endowment for Research in Finance (CERF) ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom

HOME PAGE: http://www.dungey.bigpondhosting.com

Dinesh Gajurel (Contact Author)

University of New Brunswick - Fredericton ( email )

Bailey Drive
P.O. Box 4400
Fredericton, New Brunswick
Canada

HOME PAGE: http://unb.ca/fredericton/business

University of Tasmania, Tasmanian School of Business and Economics ( email )

Private Bag 85
French Street, Sandy Bay
Hobart, Tasmania 7001
Australia

HOME PAGE: http://www.utas.edu.au/economics-finance/

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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