Global Realignment in Financial Market Dynamics

39 Pages Posted: 4 Feb 2021 Last revised: 11 Jan 2022

See all articles by Monica Billio

Monica Billio

University of Venice - Department of Economics; Ca Foscari University of Venice - Dipartimento di Economia

Andrew W. Lo

Massachusetts Institute of Technology (MIT) - Laboratory for Financial Engineering; Santa Fe Institute

Loriana Pelizzon

Goethe University Frankfurt - Faculty of Economics and Business Administration

Mila Getmansky Sherman

University of Massachusetts at Amherst - Eugene M. Isenberg School of Management - Department of Finance

Abalfazl Zareei

Stockholm University

Date Written: January 5, 2022

Abstract

The centrality of the United States in the global financial system is taken for granted, but its response to recent political and epidemiological events has suggested that other industrialized countries now hold a comparable position. In this paper, we first extend the Rapach, Strauss, and Zhou (2013) study on the leading role of the U.S. in the international markets and document a gradual decrease in the dominant role of the U.S. in the international markets by the end of 2020. Next, using minute-by-minute data from 2012 to 2020 on the financial performance of country-specific exchange-traded funds, we construct daily snapshots of the global financial network and analyze them for the centrality and connectedness of each country in our sample. We find evidence that the U.S. was central to the global financial system into 2018, but that the U.S.-China trade war of 2018–2019 diminished its centrality, and the Covid-19 outbreak of 2019–2020 increased the centrality of China. These indicators may be the first signals that the global financial system is moving from a unipolar to a bipolar (or multipolar) world.

Keywords: Network theory; Centrality; High Frequency Data; ETFs; Financial Crises; Covid-19; International Finance

Suggested Citation

Billio, Monica and Billio, Monica and Lo, Andrew W. and Pelizzon, Loriana and Getmansky Sherman, Mila and Zareei, Abalfazl, Global Realignment in Financial Market Dynamics (January 5, 2022). SAFE Working Paper No. 304, Available at SSRN: https://ssrn.com/abstract=3779127 or http://dx.doi.org/10.2139/ssrn.3779127

Monica Billio

University of Venice - Department of Economics ( email )

Fondamenta San Giobbe 873
Venezia 30121
Italy
+39 041 234 9170 (Phone)
+39 041 234 9176 (Fax)

Ca Foscari University of Venice - Dipartimento di Economia ( email )

Cannaregio 873
Venice, 30121
Italy

HOME PAGE: http://www.unive.it/persone/billio

Andrew W. Lo

Massachusetts Institute of Technology (MIT) - Laboratory for Financial Engineering ( email )

100 Main Street
E62-618
Cambridge, MA 02142
United States
617-253-0920 (Phone)
781 891-9783 (Fax)

HOME PAGE: http://web.mit.edu/alo/www

Santa Fe Institute

1399 Hyde Park Road
Santa Fe, NM 87501
United States

Loriana Pelizzon (Contact Author)

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt am Main, D-60323
Germany

Mila Getmansky Sherman

University of Massachusetts at Amherst - Eugene M. Isenberg School of Management - Department of Finance ( email )

Amherst, MA 01003-4910
United States

Abalfazl Zareei

Stockholm University ( email )

Universitetsvägen 10
Stockholm, Stockholm SE-106 91
Sweden

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