International diversification during financial crises

2018 ◽  
Vol 44 (12) ◽  
pp. 1434-1445
Author(s):  
Chu-Sheng Tai
Keyword(s):  
Financial Crisis ◽  
Stock Market ◽  
Financial Markets ◽  
Financial Crises ◽  
International Diversification ◽  
Subprime Crisis ◽  
Content Type ◽  
Empirical Results ◽  
The Impact ◽  
Dot Com

Purpose The purpose of this paper is to provide empirical evidence on how 1999–2001 dot-com crisis and 2007–2009 subprime crisis affect the gains from international diversification from the perspective of US investors. Design/methodology/approach A conditional international CAPM with asymmetric multivariate GARCH-M specification is used to estimate international diversification gains. Findings The authors find that over the entire sample period, the average gains from international diversification is statistically significant and about 1.253 percent per year. During the subprime crisis period, the average gains decreases to about 0.567 percent per year, but it increases to 2.829 percent per year during the dot-com crisis. Research limitations/implications These research findings although confirm the conjectures that international financial turmoil tends to increase the co-movements among global financial markets, are in contrast to the conjectures that international diversification does not work during the financial crisis as evidence from the dot-com crisis. Therefore, future research on international diversification should not just focus on the correlation among international financial markets and should adopt a fully parameterized asset pricing model to study this research topic. Practical implications Given the empirical results found in this paper that international diversification gains may be decreasing or increasing during the financial crisis, as long as investors are not able to predict international financial crises, it is the average gains from international diversification over the longer periods that should encourage investors to diversify, regardless of potentially lower benefits over the shorter periods of time. Originality/value The major value of this paper is that although the increase in the conditional correlation during the financial turmoil is consistent with previous studies, the empirical results clearly show that the impact of a financial crisis on the gains from international diversification cannot be solely determined by the correlation between domestic and world stock market returns since the gains also depend on the unsystematic risk from the domestic stock market. Consequently, it is premature for previous studies to conclude that the gain from international diversification is diminishing due to an increasing correlation among international stock markets during the financial crisis.

scholarly journals SYSTEMIC RISK IN TAIWAN STOCK MARKET

2012 ◽  
Vol 13 (5) ◽  
pp. 895-914 ◽  
Author(s):  
Her-Jiun Sheu ◽  
Chien-Ling Cheng
Keyword(s):  
Financial Crisis ◽  
Stock Market ◽  
Systemic Risk ◽  
Financial Crises ◽  
Idiosyncratic Risk ◽  
Risk Indicators ◽  
2008 Financial Crisis ◽  
Independent Variables ◽  
The Impact ◽  
Dot Com

Recent financial crises resulted from systemic risk caused by idiosyncratic distress. In this research, taking Taiwan stock market as an example and collecting data from 2000 to 2010 which contained the 2001 dot-com bubble and the 2007–2009 financial crisis, we adopt the CoVaR model to empirically explore the impact of sector-specific idiosyncratic risk on the systemic risk of the system and attempt to investigate the links between financial crises, systemic risk and the idiosyncratic risk of a sector-specific anomaly. The result showed sector-specific marginal CoVaR, i.e., ΔCoVaR, perfectly explained Taiwan stock market disturbance during the 2001 dot-com bubble and 2007–2008 financial crisis. Thus, by identifying the larger ΔCoVaR sectors, i.e. the systemic importance sectors, and by exploring the risk indicators, independent variables, of these systemic importance sectors, investors could practically employ the sector-specific ΔCoVaR measure to deepen the systemic risk scrutiny from a macro into a micro prudential perspective.

Does macroeconomic uncertainty really matter in predicting stock market behavior? A comparative study on China and USA

2020 ◽  
Vol 10 (4) ◽  
pp. 393-427 ◽  
Author(s):  
Ghulam Abbas ◽  
Shouyang Wang
Keyword(s):  
Risk Factors ◽  
Financial Crisis ◽  
Stock Market ◽  
Global Financial Crisis ◽  
Content Type ◽  
Macroeconomic Variables ◽  
Macroeconomic Risk ◽  
Stock Market Return ◽  
Macroeconomic Uncertainty ◽  
The Impact

PurposeThe study aims to analyze the interaction between macroeconomic uncertainty and stock market return and volatility for China and USA and tries to draw some invaluable inferences for the investors, portfolio managers and policy analysts.Design/methodology/approachEmpirically the study uses GARCH family models to capture the time-varying volatility of stock market and macroeconomic risk factors by using monthly data ranging from 1995:M7 to 2018:M6. Then, these volatility series are further used in the multivariate VAR model to analyze the feedback interaction between stock market and macroeconomic risk factors for China and USA. The study also incorporates the impact of Asian financial crisis of 1997–1998 and the global financial crisis of 2007–2008 by using dummy variables in the GARCH model analysis.FindingsThe empirical results of GARCH models indicate volatility persistence in the stock markets and the macroeconomic variables of both countries. The study finds relatively weak and inconsistent unidirectional causality for China mainly running from the stock market to the macroeconomic variables; however, the volatility spillover transmission reciprocates when the impact of Asian financial crisis and Global financial crisis is incorporated. For USA, the contemporaneous relationship between stock market and macroeconomic risk factors is quite strong and bidirectional both at first and second moment level.Originality/valueThis study investigates the interaction between stock market and macroeconomic uncertainty for China and USA. The researchers believe that none of the prior studies has made such rigorous comparison of two of the big and diverse economies (China and USA) which are quite contrasting in terms of political, economic and social background. Therefore, this study also tries to test the presumed conception that macroeconomic uncertainty in China may have different impact on the stock market return and volatility than in USA.

Herding behavior in Islamic GCC stock market: a daily analysis

2018 ◽  
Vol 11 (2) ◽  
pp. 182-193 ◽  
Author(s):  
Mustapha Chaffai ◽  
Imed Medhioub
Keyword(s):  
Stock Market ◽  
Quantile Regression ◽  
Financial Markets ◽  
Stock Returns ◽  
Stock Markets ◽  
Content Type ◽  
Quantile Regression Analysis ◽  
Herd Behaviour ◽  
The Impact ◽  
Quantile Regression Method

Purpose This paper aims to examine the presence of herd behaviour in the Islamic Gulf Cooperation Council (GCC) stock markets following the methodology given by Chiang and Zheng (2010). Generalized auto regressive conditional heteroskedasticity (GARCH)-type models and quantile regression analysis are used and applied to daily data ranging from 3 January 2010 to 28 July 2016. Results show evidence of herd behaviour in the GCC stock markets. When the data are divided into down and up market periods, herd information is found to be statistically significant and negative during upward market periods only. These results are similar to those reported in some emerging markets such as China, Japan and Hong Kong, where stock returns perform more similarly during down market periods and differently during rising markets. Design/methodology/approach The authors present a brief literature on herd behaviour. Second, the authors provide some specificity of the GCC Islamic stock market, followed by the presentation of the methodology and the data, results and their interpretation. Findings The authors take into account the difference existing in market conditions and find evidence of herding behaviour during rising markets only for GCC markets. This result was confirmed after using the quantile regression method, as evidence of herding was observed only in highly extreme periods. Stock returns perform more similarly when market is down in Islamic GCC stock market. Research limitations/implications The research limitation consists in the fact that this work can be extended to compare the GCC stock markets with other markets in Asia such as Malaysia and Indonesia. Practical implications The principal implication consists in the fact that herding behaviour is limited in the GCC markets and Islamic finance can have an important contribution to moderate the behaviour in the financial markets. Social implications The work focusses on the role of ethics in the financial markets and their ability to reduce the impact of behavioural biases. Originality/value The paper studies the behaviour of investors in the Islamic financial markets and gives an idea about the importance of the behaviour in this particular market regarding its characteristics.

Political risks and financial markets: emerging vs developed economies

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Bechir Ben Ghozzi ◽  
Hasna Chaibi
Keyword(s):  
Stock Market ◽  
Financial Markets ◽  
Political Risk ◽  
The Political ◽  
Arch Model ◽  
Excess Returns ◽  
Market Returns ◽  
Content Type ◽  
Political Risks ◽  
The Impact

PurposeThe authors provide a comparative analysis between emerging and developed financial markets in terms of the effects of political risks on stock market returns and volatility. The authors also examine whether this impact depends on the nature of political risks. Therefore, this study aims to detect which financial markets are the most profitable and the riskiest in terms of political risks.Design/methodology/approachThe authors investigate the impact of political risks on the excess stock market return and its conditional volatility using the generalized ARCH model for a sample of 46 developed and emerging markets over a period ranging from 1995 to 2019. In order to test how the nature of political risks affects equity excess returns and volatility differently in different markets, the authors employ (1) a composite political risk score, (2) the four subgroups of political risks as defined by Bekaert et al. (2005, 2014) and (3) the individual dimensions of political risks.FindingsThe findings indicate that the composite political risk is priced into both stock markets. The effect of political risks is positive for excess returns and negative for volatility. The authors show that the political risk leads to more volatility in developed markets. Nevertheless, the effect of individual components varies according to the market category.Practical implicationsThe authors provide a framework for predicting market returns and volatility using changes in the political risk of the country. The findings help investors make investment decisions based on the political decisions of governments. In other words, investors should consider political uncertainty when determining their expected earnings.Originality/valueThe authors engage monthly panel data methodology in terms of the political risk stock market relationship. In addition, the authors consider recent and very long data covering the period 1995–2019. Furthermore, this study combines three various political risk measures, and both equity returns and volatility.

Global financial crisis, foreign portfolio investment and volatility

2020 ◽  
Vol 32 (2) ◽  
pp. 177-195
Author(s):  
Abdelkader Derbali ◽  
Ali Lamouchi
Keyword(s):  
Financial Crisis ◽  
Stock Market ◽  
Emerging Markets ◽  
Global Financial Crisis ◽  
Portfolio Investment ◽  
Content Type ◽  
Foreign Portfolio Investment ◽  
Crisis Period ◽  
Asian Emerging Markets ◽  
The Impact

Purpose The purpose of this paper is to understand and compare the extent and nature of the impact of foreign portfolio investment (FPI) on the stock market volatility, particularly in the Southeast Asian emerging markets, and compare that against the corresponding experience of Indian economy, in the context of a global financial crisis of the recent past. Design/methodology/approach The Asian emerging markets are now being perceived as becoming financially more and more vulnerable to international events because of their growing exposure to unstable foreign investment flows. The daily net FPI inflow and the daily leading stock market composite index of four countries, namely, Thailand, the Philippines, Indonesia and India, have been analyzed using autoregressive conditional heteroscedasticity (ARCH)-generalized ARCH group of models dividing the study period from 2000 to 2014 among pre-crisis, crisis and post-crisis period separately. Findings The study reveals that the net inflow of FPI has been a significant determinant of stock market returns in all countries. The impact of volatility spillover from the FPI market to the stock market in the sample countries has been found to be different under different market conditions. The past information and volatility clustering have been significantly influencing the stock market return volatilities of all these Southeast Asian countries on average. Originality/value However, there are significant country-wise differences in the relative importance and direction of the relationship of each of these effects with the volatility of the FPI and the stock markets. These effects have been different in these four different markets and they have significantly altered in strength and significance during the global financial crisis and in the post-financial crisis period.

International stock market efficiency and integration

2015 ◽  
Vol 12 (2) ◽  
pp. 88-106 ◽  
Author(s):  
Neha Seth ◽  
A. K. Sharma
Keyword(s):  
Financial Crisis ◽  
Stock Market ◽  
Market Efficiency ◽  
Stock Markets ◽  
Research Work ◽  
Abnormal Returns ◽  
Content Type ◽  
Stock Market Efficiency ◽  
Recent Financial Crisis ◽  
The Impact

Purpose – The purpose of this paper is to examine the informational efficiency and integration simultaneously for select Asian and US stock markets while considering the impact of recent financial crisis. Design/methodology/approach – Daily stock market data from 13 world markets covering the period of ten years (from January 1, 2000 to December 31, 2010) is tested using Run test, Unit root test, GARCH(1, 1) model, Pearson correlation coefficient, Johansen’s cointegration test and Granger causality test. Findings – It is concluded that the markets under study are inefficient in weak form which creates the chances of earning abnormal returns for the investors. Furthermore, the markets are found to be correlated and integrated in long-run, which makes the international fund diversification insignificant. The degree of inefficiency, in general, is not affected by the recent financial crisis but the level of integration among stock markets is reduced with the effect of recent financial crisis. Practical implications – Individual/institutional investors, portfolio managers, corporate executives, policy makers and practitioners may draw meaningful conclusions from the findings of this type of researches while operating in stock markets. They can use such studies for the management of their existing portfolios as their portfolio management strategies may be, up to some extent, dependent upon such research work. Originality/value – The originality of the present study lies in the fact that this paper is an attempt to fill the time gap of comprehensive researches on Asian and US markets and an effort to test stock market efficiency and integration simultaneously.

Do return and volatility traverse the Middle Eastern and North African (MENA) stock markets borders?

2014 ◽  
Vol 41 (2) ◽  
pp. 317-344 ◽  
Author(s):  
Elie I. Bouri ◽  
Georges Yahchouchi
Keyword(s):  
Financial Crisis ◽  
Stock Markets ◽  
Global Financial Crisis ◽  
Middle Eastern ◽  
North African ◽  
Conditional Correlation ◽  
Stock Market Returns ◽  
Content Type ◽  
Empirical Results ◽  
The Impact

Purpose – This paper aims to examine the dynamic relationship across stock market returns in Morocco, Tunisia, Egypt, Lebanon, Jordan, Kuwait, Bahrain, Qatar, United Arabic Emirates (UAE), Saudi Arabia, and Oman from June 2005 to January 2012. Design/methodology/approach – The paper uses a multivariate model with leptokurtic distribution which allows for both return asymmetry and fat tails. The paper also derives from the model the conditional correlation between stock markets and examines the impact of the global financial crisis of 2008 on the conditional variance and correlation. Findings – The empirical results show that the Middle East and North African (MENA) markets are interconnected by their volatilities and not by their returns. Volatility persists in each market and significant volatility spillovers from small to relatively larger markets. During the crisis, the paper finds that conditional volatilities across markets increase but then during the post-crisis period return to their pre-crisis levels. More importantly, the conditional correlation behaves differently, with a significant evidence of downwards trend in some correlations across the MENA stock markets. Research limitations/implications – One limitation of the study relates to the relatively short-sample period which drives the empirical results. Practical implications – The key results imply that there is still a possibility of benefits from portfolio diversification across specific MENA countries during periods of high volatility. Originality/value – No previous study investigates the transmission of both the first and second moments of the return series across the MENA stock markets allowing for time-varying volatility and correlation and accounts for the 2008 global financial crisis to examine whether the conditional volatilities and correlations have strengthened or weakened during the crisis and afterwards.

Further insights into the oil and equity market relationship

2019 ◽  
Vol 36 (2) ◽  
pp. 291-310 ◽  
Author(s):  
Olfa Belhassine ◽  
Amira Ben Bouzid
Keyword(s):  
Stock Market ◽  
Price Volatility ◽  
Oil Price ◽  
Subprime Crisis ◽  
Oil Price Shocks ◽  
Price Shocks ◽  
Content Type ◽  
Asymmetric Effects ◽  
Oil Price Volatility ◽  
The Impact

Purpose This paper aims to assess the asymmetric effects of oil price shocks and the impact of oil price volatility on the Eurozone’s supersector returns, with a particular emphasis on the impact of the subprime crisis and the euro debt crisis (EDC) on this relationship. Design/methodology/approach Empirical data consist of daily observations of the 19 EURO STOXX supersector indices and the Brent crude oil price index for the period January 2001 to August 2015. This paper uses a non-linear multifactor market model. This model accounts for heteroscedasticity and breakpoints that are identified by the Bai and Perron (1998, 2003) tests. Findings The results show that supersector returns are sensitive to oil price shocks. However, in most cases, their responsiveness to oil price volatility is not significant. The relationship between oil price shocks and supersector returns changes through time and depends on the sector. Financial turbulence affects the oil-stock market nexus. In most cases, the subprime crisis has had a positive impact on the oil-stock market relationship, whereas the EDC has had an overall negative effect. Before the subprime crisis, there is an evidence of asymmetric effects for some supersectors. Meanwhile, for most sectors, the asymmetric effects disappear after 2008. Originality/value The study improves understanding of the interaction between oil price risk and the Eurozone sector indices returns. Furthermore, it enables global investors to manage the risk inherent to the portfolio managers’ positions.

Time-varying beta during the 2008 financial crisis – evidence from North America and Western Europe

2017 ◽  
Vol 18 (4) ◽  
pp. 398-431
Author(s):  
Ikrame Ben Slimane ◽  
Makram Bellalah ◽  
Hatem Rjiba
Keyword(s):  
Financial Crisis ◽  
North America ◽  
Risk Premium ◽  
Western Europe ◽  
Global Financial Crisis ◽  
Subprime Crisis ◽  
Content Type ◽  
Crisis Period ◽  
Beta Risk ◽  
The Impact

Purpose This paper aims to analyze the impact of the global financial crisis on the conditional beta in the region of North America and Western Europe and the effect on the behavior and decisions of the investor. Design/methodology/approach The authors model the variations of volatility in financial markets during crisis using the bivariate GARCH model of Engle and Kroner (1995). Findings The empirical investigation identifies an additional effect of the crisis over the period of the test. Results indicate a rise in the beta in some cases and a fall in others. This rise had a direct impact on the systematic beta risk, which increased for the majority of the companies during the crisis period. The increase in beta during the crisis period has an effect on the behavior of the investor and his decisions. Research limitations/implications The increase in the beta during the period of crisis due to a high volatility returns has an effect on the behavior and decisions of the investor. Originality/value This paper examines the effects of the “subprime crisis” on the risk premium of companies in several sectors of activity.

MULTIFRACTALS IN WESTERN MAJOR STOCK MARKETS HISTORICAL VOLATILITIES IN TIMES OF FINANCIAL CRISIS

Fractals ◽  
2017 ◽  
Vol 25 (01) ◽  
pp. 1750010 ◽  
Author(s):  
SALIM LAHMIRI
Keyword(s):  
Financial Crisis ◽  
Stock Market ◽  
Financial Markets ◽  
Strong Evidence ◽  
Hurst Exponent ◽  
Market Price ◽  
2008 Financial Crisis ◽  
Empirical Results ◽  
Return Levels ◽  
Generalized Hurst Exponent

In this paper, the generalized Hurst exponent is used to investigate multifractal properties of historical volatility (CHV) in stock market price and return series before, during and after 2008 financial crisis. Empirical results from NASDAQ, S&P500, TSE, CAC40, DAX, and FTSE stock market data show that there is strong evidence of multifractal patterns in HV of both price and return series. In addition, financial crisis deeply affected the behavior and degree of multifractality in volatility of Western financial markets at price and return levels.

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