scholarly journals Linkages between gold and Latin American equity markets: portfolio implications

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Imran Yousaf ◽  
Hasan Hanif ◽  
Shoaib Ali ◽  
Syed Moudud-Ul-Huq
Keyword(s):  
Risk Management ◽  
Financial Crisis ◽  
Latin American ◽  
Portfolio Management ◽  
Stock Markets ◽  
Equity Markets ◽  
Content Type ◽  
The Us ◽  
Equity Portfolios ◽  
Us Financial Crisis

PurposeThe authors aim to examine the mean and volatility linkages between the gold market and the Latin American equity markets in the entire sample period and two crises periods, namely the US financial crisis and the Chinese crash.Design/methodology/approachTo examine the return and volatility spillovers, the authors employ VAR-BEKK-GARCH model on the daily data of four emerging Latin American equity markets which include Peru, Chile, Brazil and Mexico, which ranges from January 2000 to June 2018.FindingsThe results show that the return transmissions vary across the stock markets and the crises periods. The volatility transmission is found to be bidirectional between the gold and stock markets of Brazil and Chile during the US financial crisis. Furthermore, the volatility spillover is unidirectional from Brazil to gold and from gold to Peru stock market during the Chinese crash. We also calculate the optimal weights hedge ratios for gold and stock portfolio. The result suggests that portfolio managers need to increase the weight of gold for the equity portfolios of Peru and Mexico during the US financial crisis. Furthermore, during the Chinese crisis, investors may raise the investment in gold for the equity portfolios of Brazil and Chile. Finally, the cheapest hedging strategy is CHIL/GOLD during the US financial crisis, whereas MEXI/GOLD during the Chinese crash.Practical implicationsThese findings have useful insights for portfolio diversification, asset pricing and risk management.Originality/valueThe study's outcome provides policymakers and investors with in-depth insights regarding hedging, risk management and portfolio management.

Impact of the 2007 US financial crisis on the emerging equity markets

2009 ◽  
Vol 4 (4) ◽  
pp. 341-357 ◽  
Author(s):  
M. Shabri Abd Majid ◽  
Salina Hj Kassim
Keyword(s):  
Financial Crisis ◽  
Stock Markets ◽  
Equity Markets ◽  
General View ◽  
Content Type ◽  
Vector Autoregressive ◽  
Crisis Period ◽  
Long Run ◽  
Current Financial Crisis ◽  
Us Financial Crisis

PurposeThe purpose of this paper is to explore empirically the effects of the current financial crisis on the integration and co‐movements of selected stock markets of the emerging economies, namely Indonesia and Malaysia.Design/methodology/approachThe paper employs the standard time series technique and vector autoregressive framework.FindingsThe results of this paper support the general view that stock markets tend to show greater degree of integration or increased co‐movements during the crisis period, resulting in lesser benefit of diversification that can be gained by investors participating in these markets.Research limitations/implicationsThis paper only focuses on emerging equity markets of Malaysia and Indonesia.Practical implicationsThis paper reveals that unlike during the pre‐crisis period, the long‐run diversification benefits that can be earned by investors across the emerging equity markets of Indonesia and Malaysia during the crisis period tend to diminish.Originality/valueBy dividing the study periods into the pre‐crisis period and during the crisis period, it enables us to explore whether the cross‐market linkages between these markets change due to the crisis.

Cross-market dynamics and optimal portfolio strategies in Latin American equity markets

2015 ◽  
Vol 27 (2) ◽  
pp. 161-181 ◽  
Author(s):  
Mohamed El Hédi Arouri ◽  
Amine Lahiani ◽  
Duc Khuong Nguyen
Keyword(s):  
Latin American ◽  
Portfolio Management ◽  
Equity Markets ◽  
Content Type ◽  
Volatility Transmission ◽  
Volatility Spillovers ◽  
Hedging Strategies ◽  
Latin American Region ◽  
The Us ◽  
American Region

Purpose – This paper aims to investigate the return links and volatility transmission between five major equity markets of the Latin American region and the USA over the period 1993-2012. Design/methodology/approach – The authors employ a multivariate vector autoregressive moving average – generalized autoregressive conditional heteroskedasticity (VAR-GARCH) methodology which allows for cross-market transmissions in both return and volatility. Moreover, we show how the obtained results can be used to design internationally diversified portfolios involving the Latin American assets and to analyze the effectiveness of hedging strategies. Findings – The results point to the existence of substantial cross-market return and volatility spillovers and are thus crucial for international portfolio management in the Latin American region. However, the intensity of shock and volatility cross effects varies across the studied markets. Research limitations/implications – The optimal weights and hedging ratios that we compute from the observed return and volatility spillovers, suggest that adding the Latin American assets helps improve the risk-adjusted return of the internationally diversified portfolios as well as reduce their risk exposure. For policymakers and market authorities, an increase in the level of shock interactions and volatility transmission between the US and Latin American equity markets as well as among these Latin American markets implies that the stability of the financial system in one country can be deeply affected by the disturbances in another country. Originality/value – The authors extend the previous works on Latin American emerging markets by examining the extent of shock and volatility transmission as well as portfolio design and management from the point of view of both the US (global) and Latin American investors.

Volatility spillover from crude oil and gold to BRICS equity markets

2018 ◽  
Vol 45 (2) ◽  
pp. 426-440 ◽  
Author(s):  
Vikas Pandey ◽  
Vipul Vipul
Keyword(s):  
Financial Crisis ◽  
Crude Oil ◽  
Stock Markets ◽  
Equity Markets ◽  
Multivariate Garch ◽  
Volatility Spillover ◽  
Conditional Correlation ◽  
Price Shocks ◽  
Content Type ◽  
Dynamic Relationship

Purpose The purpose of this paper is to investigate the volatility spillover from crude oil and gold to the BRICS stock markets, after removing the effect of co-movement of prices of crude oil and gold. Design/methodology/approach Three multivariate GARCH models (dynamic conditional correlation, constant conditional correlation, and Baba, Engle, Kraft and Kroner) are used to capture the dynamic relationship between the crude oil and gold returns. The innovations from gold and oil are orthogonalized, and the EGARCH model is employed for the spillover analysis. The influences of oil price shocks and gold price shocks are tested on the returns of each of the BRICS equity markets. Findings There is evidence of volatility spillover from both the crude oil and gold to the BRICS stock markets. A sub-sample analysis suggests that the volatility spillover from gold was not significant before the financial crisis of 2008, but became significant post-crisis. The volatility asymmetry, which was not significant before the crisis, also became significant after it. Originality/value This study examines the volatility spillover to the BRICS stock markets from crude oil and gold, after accounting for the co-movement in their prices. It can help equity investors to judge whether gold can provide incremental diversification benefit, if used in conjunction with crude oil. The study also provides insights into the changes caused by the 2008 financial crisis on this volatility spillover mechanism.

Volatility causality and contagion in international securitized real estate markets

2018 ◽  
Vol 11 (2) ◽  
pp. 244-168 ◽  
Author(s):  
KimHiang Liow ◽  
Qing Ye
Keyword(s):  
Financial Crisis ◽  
Real Estate ◽  
Portfolio Management ◽  
Real Estate Market ◽  
Market Volatility ◽  
Content Type ◽  
Real Estate Markets ◽  
The Us ◽  
High Volatility ◽  
Empirical Investigations

Purpose This paper aims to investigate volatility causality and return contagion on nine international securitized real estate markets by appealing to Markov-switching (MS) regime approach, from July 1992 to June 2014. Design/methodology/approach An MS causality interaction model (Psaradakis et al., 2005), an MS vector auto-regression mode (Krolzig, 1997) and a multivariate return contagion model (Dungey et al., 2005) were used to implement the empirical investigations. Findings There exist regime shifts in the volatility causality pattern, with the volatility causality effects more pronounced during high volatility periods. During high volatility period, real estate markets’ causality interactions and inter-linkages contribute to strong spillover effect that leads to extreme volatility. However, there is relatively limited return contagion evidence in the securitized real estate markets examined. As such, the US financial crisis might probably be due to cross-market interdependence rather than contagion. Research limitations/implications Because international investors incorporate into their portfolio allocation not only the long-run price relationship but also the short-run market volatility connectedness and return correlation structure, the results of this MS causality and contagion study have provided valuable information on the evaluation of regime-dependent securitized real estate market risk, as well as useful guidance on asset allocation and portfolio management decisions for institutional investors. Practical implications Financial crisis is one of the key determinants of cross-market volatility interactions. Portfolio managers should be alerted of the observation that the US and the other developed securitized real estate markets are increasingly sharing “common market cycles” in recent years, thereby diminishing the diversification benefits. For policymakers, this research indicates that the volatilities of the US securitized real estate market could be helpful to predict those of other developed markets. It is also important for them to pay attention to those potential risk factors behind the amplified causality, contagion and volatility spillover at times of crisis. Finally, a wider implication for policymakers is to manage the transmission channels through which global stock market return and volatility shocks can affect the local economies and domestic financial markets, including securitized real estate markets. Originality/value Real estate investments have emerged to show low correlation with stocks and bonds and contributed to portfolio optimization. With real estate that can serve as a type of consumption commodity and an investment tool, the risk-return profile of real estate is different from that of the underlying stock markets. Therefore, the performance and investment dynamics and real estate-stock link are not theoretically expected to be similar, that requires separate empirical investigations. This paper aims to stand out from the many papers on the same or similar topics in the application of the three MS methodologies to regime-dependent real estate market integration.

Regional volatility: common or country-specific? Exploration of international stock market

2014 ◽  
Vol 31 (4) ◽  
pp. 406-425
Author(s):  
Asma Mobarek ◽  
Michelle Li
Keyword(s):  
Financial Crisis ◽  
Stock Market ◽  
Stock Returns ◽  
Latin American ◽  
Stock Markets ◽  
Asia Pacific ◽  
Stock Market Volatility ◽  
Common Component ◽  
Content Type ◽  
Country Specific

Purpose – The purpose of this paper is to test whether the volatility of regional stock markets’ is common or country-specific for 46 international markets of the Asian, European, African and Latin American regions using the Morgan Stanley Capital International daily prices in the period from January 1998 to December 2009. Further, the study has been divided into two sub-periods to distinguish the effects of the current sub-prime financial crisis and to determine whether the crisis has an impact on the fluctuations of common component of stock market volatility. Design/methodology/approach – The paper applies the time-varying weighting methodology of Lumsdaine and Prasad (2003) to determine whether the volatility fluctuation is country-specific or common across the countries. Findings – The results evidence that the volatility of stock returns is due to common factors, rather than country-specific ones, but this is not always the case. However, this common component is more stable in European and Latin American countries than in the Asia-Pacific and African regions. Furthermore, the results suggest that the influence of a common component has been enhanced significantly during the current sub-prime financial crisis. Practical implications – The study has implication for domestic and international investors, portfolio managers, as well as policy-makers to implement economic and financial policy that promote stability, reduce vulnerability to crises and encourage sustained growth and living standards. Originality/value – To the best of the authors’ knowledge, this is the first study to include four regional samples and test the common component of fluctuations of regional stock markets volatility.

scholarly journals Impacts Of The 2008 Financial Crisis On South American Equity Markets

2014 ◽  
Vol 13 (3) ◽  
pp. 573
Author(s):  
Jae-Kwang Hwang ◽  
Young Dimkpah ◽  
Alex I. Ogwu
Keyword(s):  
Financial Crisis ◽  
Stock Returns ◽  
Latin American ◽  
Stock Markets ◽  
Financial Integration ◽  
South American ◽  
2008 Financial Crisis ◽  
International Portfolio Diversification ◽  
The 2008 Financial Crisis ◽  
Us Financial Crisis

This paper examines the transmission of the 2008 US financial crisis to four Latin American stock markets using daily stock returns from 2006 to 2009, analyzing returns before and during the 2008 financial crisis. The empirical evidence presents a financial integration by showing persistently higher volatility during the crisis period. This indicates that most of the stock markets in this study were severely hit by the US financial crisis. However, the evidence shows that Chile was less impacted by the 2008 financial crisis. The results here could be useful in international portfolio diversification decision-making in South American region.

scholarly journals Predicting Contagion from the US Financial Crisis to International Stock Markets Using Dynamic Copula with Google Trends

Mathematics ◽  
2019 ◽  
Vol 7 (11) ◽  
pp. 1032 ◽  
Author(s):  
Maneejuk ◽  
Yamaka
Keyword(s):  
Financial Crisis ◽  
Stock Market ◽  
Stock Markets ◽  
Google Trends ◽  
Time Varying ◽  
International Stock Markets ◽  
Leading Indicator ◽  
Dynamic Copula ◽  
The Us ◽  
Us Financial Crisis

The accuracy of contagion prediction has been one of the most widely investigated and challenging problems in economic research. Much effort has been devoted to investigating the key determinant of contagion and enhancing more powerful prediction models. In this study, we aim to improve the prediction of the contagion effect from the US stock market to the international stock markets by utilizing Google Trends as a new leading indicator for predicting contagion. To improve this contagion prediction, the dynamic copula models are used to investigate the structure of dependence between international markets and the US market, before, during, and after the occurrence of the US financial crisis in 2008. We also incorporate the Google Trends data as the exogenous variables in the time-varying copula equation. Thus, the ARMAX process is introduced. To investigate the predictive power of Google Trends, we employ the likelihood ratio test. Our empirical findings support that Google Trends is a significant leading indicator for predicting contagion in seven out of 10 cases: SP-FTSE, SP-TSX, SP-DAX, SP-Nikkei, SP-BVSP, SP-SSEC, and SP-BSESN pairs. Our Google-based models seem to predict particularly well the effect of the US crisis in 2008. In addition, we find that the contribution of Google Trends to contagion prediction varies among the different stock market pairs. This finding leads to our observation that the more volatile the market time-varying correlation, the more useful Google Trends.

scholarly journals Return and Volatility Transmission between World-Leading and Latin American Stock Markets: Portfolio Implications

2020 ◽  
Vol 13 (7) ◽  
pp. 148 ◽  
Author(s):  
Imran Yousaf ◽  
Shoaib Ali ◽  
Wing-Keung Wong
Keyword(s):  
Financial Crisis ◽  
Stock Market ◽  
Latin American ◽  
Stock Markets ◽  
Global Financial Crisis ◽  
Volatility Spillover ◽  
Chinese Stock Market ◽  
Volatility Transmission ◽  
The Us ◽  
The Global Financial Crisis

This study uses the BEKK-GARCH model to examine the return-and-volatility spillover between the world-leading markets (USA and China) and four emerging Latin American stock markets over the global financial crisis of 2008 and the crash of the Chinese stock market of 2015. Regarding return spillover, our findings reveal a unidirectional return transmission from Mexico to the US stock market during the global financial crisis. During the crash of the Chinese stock market, the return spillover is found to be unidirectional from the US to the Brazil, Chile, Mexico, and Peru stock markets. Moreover, the results indicate a unidirectional return transmission from China to the Brazil, Chile, Mexico, and Peru stock markets during the global financial crisis and the crash of the Chinese stock market. Regarding volatility spillover, the results show the bidirectional volatility transmission between the US and the stock markets of Chile and Mexico during the global financial crisis. During the Chinese crash, the bidirectional volatility transmission is observed between the US and Mexican stock markets. Furthermore, the volatility spillover is unidirectional from China to the Brazil stock market during the global financial crisis. During the Chinese crash, the volatility spillover is bidirectional between the China and Brazil stock markets. Lastly, a portfolio analysis application has been conducted.

Behavioral explanation of contagion between oil and stock markets

2014 ◽  
Vol 8 (1) ◽  
pp. 121-144 ◽  
Author(s):  
Achraf Ghorbel ◽  
Mouna Abbes Boujelbene ◽  
Younes Boujelbene
Keyword(s):  
Financial Crisis ◽  
Stock Markets ◽  
Investor Sentiment ◽  
Correlation Coefficients ◽  
Time Varying ◽  
Market Returns ◽  
Content Type ◽  
Crisis Period ◽  
Oil Market ◽  
Us Financial Crisis

Purpose – This paper aims to investigate empirical evidence of behavioral contagion between oil market, US market and stock markets of oil-importing and oil-exporting countries, during the oil shock and US financial crisis period of 2008-2009, after controlling for fundamentals-driven co-movements. Design/methodology/approach – To examine the volatility spillover among oil market and stock markets, the conditional variance of the trivariate BEKK-GARCH model includes three variables: oil returns, US index returns, and the respective individual market returns of 22 oil-importing and exporting countries. The authors estimate the time-varying correlation coefficients between the prediction error of oil market and each stock index. Also, the authors estimate the time-varying correlation coefficients between the prediction error of US market and each stock index. Findings – The estimation of the trivariate BEKK-GARCH model for VIX, oil market and 23 stock markets of oil-importing and oil-exporting countries suggests the volatility spillover of American investor sentiment to stock market and oil market returns. To capture the pure contagion effects between oil market and stock markets, the authors estimate the forecasting errors of time-varying parameter using the Kalman independently of macroeconomic fundamentals factors. The authors analyze the dynamic correlation between forecasting errors of oil price returns and stock indices returns. The authors show a sharp increase in time-varying correlation coefficients during the oil crisis and US financial crisis period of 2008-2009, which provides strong evidence of herding contagion between oil market and stock markets during the turmoil period. Originality/value – This paper makes an original contribution in identifying the behavioral contagion between oil market, US market and stock markets of oil-importing and exporting countries especially during the oil shock and US financial crisis period of 2008-2009. Specifically, the authors consider investor sentiment and herding bias to explain the volatility transmission between oil and stock market returns.

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