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Financial Markets in East Asia and Europe during the Global Financial Crisis
Author(s) -
Johansson Anders C.
Publication year - 2011
Publication title -
the world economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.594
H-Index - 68
eISSN - 1467-9701
pISSN - 0378-5920
DOI - 10.1111/j.1467-9701.2011.01366.x
Subject(s) - east asia , financial crisis , volatility (finance) , equity (law) , diversification (marketing strategy) , economics , financial market , china , financial integration , finance , financial system , business , geography , political science , macroeconomics , archaeology , marketing , law
This paper analyses equity market movements in East Asia and Europe during the global financial crisis. The results show that volatility and covariance patterns in East Asia and Europe were relatively stable until the second half of 2008. Correlations were higher in Europe, but relatively high in East Asia as well. Both regions exhibited an overall increase in comovements compared with the time of the Asian financial crisis. There was a sharp decline in regional correlation during the third‐quarter of 2008 in both East Asia and Europe, which was then followed by a strong increase. The spread of the crisis affected Europe more, with resulting higher regional comovements. Moreover, average tail dependence stayed relatively stable in both regions throughout the precrisis and crisis periods with a notably higher regional level in Europe. Also, markets in East Asia such as China that are usually seen as insulated from the rest of the region show signs of increasing market integration with the rest of the region. Overall, the increasing level of financial market integration and the high level of comovements during times of international financial turmoil demonstrate the limited benefits of diversification in regional portfolios.