Financial contagion analysis in frontier markets: Evidence from the US subprime and the Eurozone debt crises

Abstract

This study assesses the effects of the US financial and the Eurozone debt crises on a large set of frontier stock markets. Detrended Cross Correlation Analysis (DCCA) and Detrended Moving Cross Correlation Analysis (DMCA) are employed to investigate whether correlations between the crises-originating countries ts (US and Greece) and frontier stock markets increased from the calm to each crisis periods. Our results indicate that this was indeed the case and frontier markets were affected by both crises. DCCA and DMCA coefficients increased significantly for countries in Europe and also, although not so strongly, for Middle Eastern ones with the subprime crisis. In the case of the Eurozone debt crisis, the most affected countries were Slovenia, Romania, Nigeria, Kuwait, Oman and Vietnam. Evidence of contagion, using the test proposed by Guedes et al. (2018a, 2018b), is thus weaker in the case of the European debt crisis,leading to the conclusion that frontier stock markets were more affected by the US financial turmoil.

Earnings Management in Frontier Market: Do Institutional Settings Matter?

“…Berger et al (2011) and Guesmi and Nguyen (2011) note frontier markets' low integration with other markets provides greater return and diversification benefits (Girard and Sinha 2008). More recently, the linkages between markets have increased over time (Baumöhl and Lyócsa 2014), causing them to experience greater contagion impacts from global turmoils (Mohti et al 2019).…”

Is the COVID-19 pandemic more contagious for the Asian stock markets? A comparison with the Asian financial, the US subprime and the Eurozone debt crisis

“…The catastrophic impact of a financial crisis is one of the most researched issues in financial markets worldwide. A typical consequence of a financial crisis is that it causes severe disruption in originating financial market and sets off volatility shock waves across other financial markets (Baig and Goldfajin 1998; Allen & Gale, 1999 ; Diebold & Yilmaz, 2012 ; Celık, 2012 ; Mohti, Dionísio, Vieira, & Ferreira, 2019 ; Akhtaruzzaman, Boubaker, & Sensoy, 2021 ; Corbet, Hou, Yang, Lucey, & Oxley, 2021 ). This type of transmission or comovement between financial markets across various geographies is commonly referred to as ‘contagion’.…”

EU Stock Markets vs. Germany, UK and US: Analysis of Dynamic Comovements Using Time-Varying DCCA Correlation Coefficients

“…In the particular case of stock markets, some studies have analysed comovements between different stock markets, e.g., China and surrounding markets (Ma et al 2014), the Middle East and North Africa (El Alaoui and Benbachir 2013), China and the US (Shi et al 2014), andPortugal andBrazil (Ferreira 2017). Other studies have analysed the variation of DCCA correlation coefficients over time, e.g., those of da Silva et al (2016), Wang et al (2017), and Mohti et al (2019).…”