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 te...

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Bibliographic Details
Published in:International journal of emerging markets 2009-09, Vol.4 (4), p.341-357
Main Authors: Shabri Abd Majid, M., Hj Kassim, Salina
Format: Article
Language:English
Subjects:
Economic crisis
Economic impact
Emerging markets
Equity capital
Globalization
Indonesia
Malaysia
Recession
Securities markets
Stock exchanges
Stock markets
Studies
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Summary: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.
ISSN:1746-8809
1746-8817
DOI:10.1108/17468800910991241