Global Equity Market Co-Movement During Crisis Periods

Abstract

We analyze global equity market co-movement during the last 25 years using a dynamic spatial model. Based on a generalized autoregressive score model, we analyze the co-movement among global, European, American, and Asian equity markets during various crises including the Asian, the financial, the European sovereign debt crisis, as well as the economic turmoil due to the current COVID-19 pandemic. Our results show an increase in the co-movement prior to the onset of the global financial crisis in 2008, a generally higher co-movement among European countries compared to American and Asian-Pacific countries, while the highest level of co-movement is reached during the current pandemic. When accounting for time-varying variances, however, we find evidence for global contagion only during the COVID-19 pandemic which induces an economic downturn in the first quarter of 2020.

Keywords: Co-movement; Contagion; Stock markets; Crisis ; Volatility; COVID- 9; GAS

JEL Classification: C21, G01, G15