EMERGING STOCK MARKET INTEGRATION: EVIDENCE FROM THE PRE- AND POST-FINANCIAL CRISIS OF 2007-2009

Authors

  • Carol O. Bruce-Tagoe Lumpkin College of Business and Technology, Eastern Illinois University
  • Ingyu Chiou Lumpkin College of Business and Technology, Eastern Illinois University
  • Menghistu Sallehu Lumpkin College of Business and Technology, Eastern Illinois University

DOI:

https://doi.org/10.33736/ijbs.6400.2023

Keywords:

Emerging stock market, cointegration, global financial crisis

Abstract

We investigate the interdependence between the US and seven emerging economy stock markets in Brazil, China, India, Malaysia, Mexico, Taiwan, and Thailand. Specifically, we examine how the 2007-2009 financial crisis influenced the dynamics of stock market integration between the US and seven emerging countries by analyzing the short-run and long-run effects of the crisis over pre-crisis (January 1995 to November 2007) and post-crisis (July 2009 to December 2018) periods. The results of Johansen co-integration tests confirm presence of co-integration in both sample periods. Short-run Vector Error Correction Model (VECM) results indicate a significant influence of the US market on the seven markets except for Brazilian and Chinese markets in the pre-crisis period. The pre-crisis long-run results demonstrate significant cointegrating relationships between the US market and the Indian, Malaysian, Mexican, and Thai markets. Only the Mexican market had the same cointegrating relationship with the US market in both periods. The insignificant pre-crisis period cointegrating relationships between the US and Brazilian, Chinese, and Taiwanese markets become significant post-crisis. Although the Indian stock market was cointegrated with the US market in the pre-crisis period, the relationship is insignificant post-crisis. Overall, our findings confirm that the US and seven emerging economy equity markets exhibit some degree of short-run and long-run cointegration. We also find that a negative shock such as a financial crisis may significantly change co-movements among the stock markets. We contribute to the existing literature on financial market integration by examining recent data around the global financial crisis.

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Published

2023-12-26

How to Cite

Carol O. Bruce-Tagoe, Ingyu Chiou, & Menghistu Sallehu. (2023). EMERGING STOCK MARKET INTEGRATION: EVIDENCE FROM THE PRE- AND POST-FINANCIAL CRISIS OF 2007-2009. International Journal of Business and Society, 24(3), 1046–1064. https://doi.org/10.33736/ijbs.6400.2023