Title: Linkages in global financial market during financial crises: a comparison of the periods 1995-2000 and 2007-2009
Authors: Malgorzata Doman, Ryszard Doman
Addresses: Department of Applied Mathematics, Poznan University of Economics, Al. Niepodleglosci 10, 61-875 Poznan, Poland. ' Faculty of Mathematics and Computer Science, Adam Mickiewicz University in Poznan, Umultowska 87, 61-614 Poznan, Poland
Abstract: The aim of the paper is to describe and compare the dynamics of linkages between stock markets during financial crises. We investigate similarities and differences between the patterns of changes in the conditional dependence structure during the 1997 Asian and 1998 Russian financial crises, and the crisis of 2007-2009. The question we try to answer is how the location of the starting point influences the way and the dynamics of the crisis expansion. The basic tool for our analysis is a Markov regime-switching copula model applied to pairs of the daily returns on chosen representative stock indices. The model enables us to distinguish regimes without extreme dependence, and ones with tail dependence which can be of asymmetric type. Our main findings are that the increase in the strength of lower tail dependence is the most significant indicator of the crisis.
Keywords: financial crises; linkages; copulas; regime switching; Maurice Kendall; rank correlation coefficient; Kendall|s tau; tail dependence; global markets; globalisation; stock markets; change patterns; conditional dependence structures; Asia; Russia; crisis expansion; Andrey Markov; stock indices; extreme dependence; asymmetric types; financial markets; applied financial economics; modelling.
International Journal of Financial Markets and Derivatives, 2010 Vol.1 No.4, pp.371 - 394
Published online: 03 Oct 2010 *Full-text access for editors Access for subscribers Purchase this article Comment on this article