Global Financial Crisis and Emerging Stock Market Contagion: A Multivariate FIAPARCH-DCC Approach

Posted: 15 Jun 2013 Last revised: 26 Aug 2013

See all articles by Dimitrios I. Dimitriou

Dimitrios I. Dimitriou

University of Ioannina - Department of Economics; National and Kapodistrian University of Athens

Dimitris Kenourgios

National and Kapodistrian University of Athens - Department of Economics

Theodore Simos

University of Ioannina - Department of Economics

Date Written: May 28, 2013

Abstract

This paper empirically investigates the contagion effects of the global financial crisis in a multivariate Fractionally Integrated Asymmetric Power ARCH (FIAPARCH) dynamic conditional correlation (DCC) framework during the period 1997-2012. We focus on five most important emerging equity markets, namely Brazil, Russia, India, China and South Africa (BRICS), as well as USA during different phases of the crisis. The length and the phases of the crisis are identified based on both an economic and a statistical approach. The empirical evidence does not confirm a contagion effect for most BRICS during the early stages of the crisis, indicating signs of isolation or decoupling. However, linkages reemerged (recoupled) after the Lehman Brothers collapse, suggesting a shift on investors’ risk appetite. Moreover, correlations among all BRICS and USA are increased from early 2009 onwards, implying that their dependence is larger in bullish than in bearish markets. These findings do not show a pattern of contagion for all BRICSs’ markets that could be attributed to their common trade and financial characteristics and provide important implications for international investors and policymakers.

Keywords: Global financial crisis, Contagion, FIAPARCH-DCC model, BRICSs’ emerging markets

JEL Classification: G15, F30

Suggested Citation

Dimitriou, Dimitrios I. and Dimitriou, Dimitrios I. and Kenourgios, Dimitris and Simos, Theodore, Global Financial Crisis and Emerging Stock Market Contagion: A Multivariate FIAPARCH-DCC Approach (May 28, 2013). International Review of Financial Analysis, 30, December 2013, pp. 46-56 , Available at SSRN: https://ssrn.com/abstract=2279822

Dimitrios I. Dimitriou

University of Ioannina - Department of Economics ( email )

45110 Ioannina
Greece

National and Kapodistrian University of Athens ( email )

Department of Economics
Athens
Greece

Dimitris Kenourgios (Contact Author)

National and Kapodistrian University of Athens - Department of Economics ( email )

1, Sofokleous Str
Office 521
Athens, 10559
Greece
+30 210 3689449 (Phone)

Theodore Simos

University of Ioannina - Department of Economics ( email )

45110 Ioannina
Greece

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