Central European Business Review 2015, 4(2):31-39 | DOI: 10.18267/j.cebr.124

Investigating Contagion and Market Interdependence during the Global Financial Crisis

Filip Iorgulescu

Filip Iorgulescu, Assistant Professor, The Bucharest University of Economic Studies, Romania, Piața Romană no. 6, Bucharest, Romania, lip.iorgulescu@n.ase.ro

This paper examines the roles played by market interdependence and contagion in the propagation of the 2007-2009 global financial crisis. For this purpose, five aggregate indices were employed, representing all the major financial markets from each geographical region. The data series are daily and they cover the period between 2002 and 2014. The presence of contagion and market interdependence was assessed by means of the values and value changes of the correlation coefficients between the ante crisis (2002-2007), the crisis (2007-2009) and the post crisis (2009-2014) intervals, as well as with the aid of a spillover index. The results indicate a high degree of interdependence between the global financial markets even before the occurrence of the crisis. On the other hand, there is evidence that the crisis spread through contagion mainly from the developed financial markets of Europe and North America to the emerging centers in Africa and Latin America while the markets from the Asia/Pacific region displayed lower correlations which may have given opportunities for the mitigation of losses. Moreover, since the majority of the correlation coefficients have not decreased significantly after the 2007-2009 period, it seems that the crisis intensified the degree of global financial integration.

Keywords: contagion; interdependence; crisis; correlation; spillover

JEL classification: G01, G15

Received: March 11, 2015; Revised: June 14, 2015; Published: June 30, 2015  Show citation