Discerning the effect of international stock markets before and after the subprime crisis

Rahmali, Atiqah and Masih, Mansur (2017): Discerning the effect of international stock markets before and after the subprime crisis.

Abstract

The recent financial crisis spread to markets worldwide. Therefore, the purpose of this paper is to test the interdependencies of capital markets selected which are DJIA, NIKKEI, FTSE, SSE and IBEX, before and after the Global Financial Crisis. Furthermore, it also identifies which index influences or affects FTSE, if any. The study is important because it attempts to test whether the rise in FTSE index is due to the other indices or speculative reasons. Using data from Jan 2000 to June 2007as the first period (before the crisis) and the period from July 2007 onward as the second period (after the crisis), we examine if the FTSE index is affected by the past behaviour of the DJIA, NIKKEI (JAP), Shanghai (CHSA) and IBEX indices. The method of estimation is the standard Time series Techniques. This study found that during the first period (before the crisis) Shanghai Stock Index and IBEX impacted FTSE performance, however, during the second period (after the crisis) Shanghai Stock index and NIKKEI impacted FTSE performance. Contrary to the popular belief, the results did not indicate that the American DJIA was influential in affecting the other stock markets. Thus, we suggest that investors should focus on emerging market performance when it comes to the investment selection.

• Item Type: MPRA Paper
• Language: English
• Keywords: Effects of international stock markets, subprime crisis, VECM, VDC
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C58 - Financial Econometrics; G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets

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