Forex and Equity Markets Spillover Effects Among USA, Brazil, Italy, Germany and Canada in the Aftermath of the Global Financial Crisis

Abstract

In this paper we investigate the spillover effects of FOREX and equity markets for USA, Brazil, Italy, Germany and Canada on the basis of daily data. We test for contagion co-movements for the period 2010-2018 post global financial crisis, using the trivariate AR-diagonal BEKK model. The estimated dynamic conditional correlations show the strongest contagion effects for the pairs of markets: S&P500-BOVESPA, S&P500-FTSEMIB, S&P500-DAX30 and S&P500-S&PTSX. For institutions, multinational corporations and active investors, a portfolio consisting of financial assets from the above markets is extremely risky.

Keywords: Financial contagion, Global Economic Crisis, AR diagonal BEKK model, International equity market, Foreign exchange market

JEL Classification: C58, C61, G11, G15