Impact of the 2007 US financial crisis on the emerging equity markets

Impact of the 2007 US financial crisis on the emerging equity markets Purpose – The purpose of this paper is to explore empirically the effects of the current financial crisis on the integration and co‐movements of selected stock markets of the emerging economies, namely Indonesia and Malaysia. Design/methodology/approach – The paper employs the standard time series technique and vector autoregressive framework. Findings – The results of this paper support the general view that stock markets tend to show greater degree of integration or increased co‐movements during the crisis period, resulting in lesser benefit of diversification that can be gained by investors participating in these markets. Research limitations/implications – This paper only focuses on emerging equity markets of Malaysia and Indonesia. Practical implications – This paper reveals that unlike during the pre‐crisis period, the long‐run diversification benefits that can be earned by investors across the emerging equity markets of Indonesia and Malaysia during the crisis period tend to diminish. Originality/value – By dividing the study periods into the pre‐crisis period and during the crisis period, it enables us to explore whether the cross‐market linkages between these markets change due to the crisis. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Emerging Markets Emerald Publishing

Impact of the 2007 US financial crisis on the emerging equity markets

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Publisher
Emerald Publishing
Copyright
Copyright © 2009 Emerald Group Publishing Limited. All rights reserved.
ISSN
1746-8809
DOI
10.1108/17468800910991241
Publisher site
See Article on Publisher Site

Abstract

Purpose – The purpose of this paper is to explore empirically the effects of the current financial crisis on the integration and co‐movements of selected stock markets of the emerging economies, namely Indonesia and Malaysia. Design/methodology/approach – The paper employs the standard time series technique and vector autoregressive framework. Findings – The results of this paper support the general view that stock markets tend to show greater degree of integration or increased co‐movements during the crisis period, resulting in lesser benefit of diversification that can be gained by investors participating in these markets. Research limitations/implications – This paper only focuses on emerging equity markets of Malaysia and Indonesia. Practical implications – This paper reveals that unlike during the pre‐crisis period, the long‐run diversification benefits that can be earned by investors across the emerging equity markets of Indonesia and Malaysia during the crisis period tend to diminish. Originality/value – By dividing the study periods into the pre‐crisis period and during the crisis period, it enables us to explore whether the cross‐market linkages between these markets change due to the crisis.

Journal

International Journal of Emerging MarketsEmerald Publishing

Published: Sep 25, 2009

Keywords: Indonesia; Malaysia; Equity capital; Stock markets; Recession; Globalization

References

  • Time‐varying world market integration
    Bekaert, G.; Harvey, C.R.
  • Predictable stock returns in the United States and Japan: a study of long‐term capital market integration
    Campbell, J.Y.; Hamao, Y.
  • High road to a global marketplace: the international transmission of stock market fluctuations
    Fischer, K.P.; Palasvirta, A.P.
  • Stock market linkages in South East Asia
    Hee, N.T.
  • International linkage of stock prices: the case of Indonesia
    Ibrahim, M.H.
  • Maximum likelihood estimation and inference on cointegration‐with application to the demand for money
    Johansen, S.; Juselius, K.
  • Emerging Asia: decoupling or recoupling
    Kim, S.; Lee, J.W.; Park, C.Y.
  • Dynamic linkages among ASEAN‐5 emerging stock markets
    Majid, M.S.A.; Meera, A.K.M.; Omar, M.A.; Aziz, A.H.

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