Global Financial Crisis and Stock Market Integration between Northeast Asia and Europe

Abstract

This study examines the effect of financial crisis on the level of stock market integration. In particular, we investigated the dynamic movements of two regional stock markets, Northeast Asia and Europe during the period between January 1 st , 2000 and December 31 st , 2012, with particular attention placed on the global financial crisis (GFC). For this purpose, the paper employs various approaches including DCC-MGARCH, Risk Decomposition, GVAR, and CCOR models to ensure the robustness of empirical findings. The findings of this study are as follows. First, the Northeast Asian stock market remains independent from the European and global stock market movements during the sample period. Second, the European stock market shows an increasing trend of joint integration with Northeast Asian stock market. However, the level of integration is not economically significant. Third, the level of market integration between European and global stock markets had temporally increased during the GFC. However, the level returned to its pre-crisis level in the post-crisis era. The overall empirical evidence suggests that, for either European or global stock market portfolio, constructing a portfolio with Northeast Asian stock market would result in a more efficient portfolio. The results in this paper do not support the view of previous empirical studies which suggested the increased level of integration since the GFC. An increased integration is found to be only unique to the crisis period. In sum, the market integration is a dynamic process, and the financial crisis did not uniformly affect the level of stock market integration.

Do Short‐ and Long‐Term Environmental Investments Follow the Same Path?

“…Based on the estimates generated by the multivariate model, Figure was constructed to analyse the time varying nature of the correlations established between the five environmental segments. These results are consistent with those obtained in other research works on conventional indexes, namely, Li and Majerowska (), Dajcman et al () and Lee and Jeong (), in which the co‐movements between stock market returns are time varying.…”

“…This highly asymmetric effect implies that each environmental segment reacts to different news sources from different segments and adjusts accordingly. This situation is quite similar to conventional markets, considering the results of other research studies, namely, those of Goeij and Marquering () and Lee and Jeong (). Additionally, the sum of the overall parameters of the model ( α + β < 1) is close to one, ensuring that the conditional correlation matrix is defined as positive, in accordance with the methodological proposals of Engle () and Tse and Tsui ().…”

“…According to several studies, the accommodation of asymmetric effects of volatility in the multivariate model is an important element in terms of serving as an appropriate specification of conditional variance–covariance matrixes and in terms of implications for asset allocation (Goeij & Marquering, ). However, it is important for modelling asset prices (Bekaert & Wu, ), for studying links between stock markets (Soriano & Climent, ; Li & Majerowska, ; Dajcman et al, ; Lee & Jeong, ) and for operations hedging (Aragó & Salvador, ).…”

The Financial Crisis and Co-Movement of Global Stock Markets—A Case of Six Major Economies

“…Since the variance decomposition requires estimates of infinite-horizontal expectations. The basic VAR methodology from Lee (2014) [10] is applied, but extended in various directions. Since VAR contributes a lot to the study of co-movements, this paper offers some of the theoretical introduction related to the VAR method.…”

“…Empirical studies on the pre-crisis and crisis periods of the global financial crisis such as Lee and Jeong (2014) [10], have indicated that the level of market integration between Europe and other global stock markets had temporally increased during the global financial crisis. However, the level returned to its pre-crisis level in the post-crisis era.…”