Date of Award

2011

Degree Type

Thesis

Degree Name

Bachelor of Business Honours

School

School of Business

Faculty

Faculty of Business and Law

First Advisor

David Allen

Abstract

This study investigates how short and long term interdependencies have changed among ten countries grouped into countries from the same region (close geographical proximity) as a result of the recent Global Financial Crisis. A number of econometrics methodologies are employed in doing the analysis. Johansen's cointegration methodology is carried out to assess whether the stock markets have long run interdependencies and whether these interdependencies have changed as a result of the Global Financial Crisis. For the stock markets not cointegrated Granger Causality is carried out to analyze short run interdependencies between pairs of stock markets. Furthermore, generalized Impulse Response Function (GIRF) analysis is carried out to assess the speed at which shocks are fully incorporated by a stock market. Generalized Forecast Error Variance Decompositions (GFEVD) is used to assess the most endogenous, least endogenous and most exogenous stock markets. Using Johansen's cointegration method, there is no change in the level of integration and long run interdependencies among the American stock markets, evidenced by the number of co integrating vectors staying the same in all sample periods. For the European stock markets, the level of integration and long run interdependencies increase in comparison to before the crisis. In contrast the level of integration and interdependencies decrease for the Asian stock markets in comparison to before the crisis with no cointegration being present during the GFC and after. Evidence of Granger causality is found between the European stock markets before the crisis but none is found between the Asian stock markets during the GFC and in the post GFC period. The GIRF generally shows a change in responses and a change in the speed at which stock markets incorporate shocks to other stock markets during the GFC period. The GIRF graphs show that the stock markets take longer to fully incorporate the effects of shocks during the GFC in comparison to the pre GFC sample period and post GFC sample period. Lastly the GFEVD analysis finds that there is an increase in the contribution of other markets in explaining shocks to each individual market implying an increase in interdependencies as is found by Worthington & Higgs (2004) as a result of the Asian crisis of 1997 and Masih & Masih (1997) as a result of the October 1987 Crash.

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