This market allows companies to raise a larger amount of capital than a single market and investors to hold stocks in a number of different countries simultaneously.
Published in Chapter:
International Portfolio Diversification Benefits among Developed and Emerging Markets within the Context of the Recent Global Financial Crisis
Gülin Vardar (Izmir University of Economics, Turkey), Berna Aydoğan (Izmir University of Economics, Turkey), and Ece Erdener Acar (Izmir University of Economics, Turkey)
Copyright: © 2014
|Pages: 24
DOI: 10.4018/978-1-4666-5154-8.ch013
Abstract
This chapter aims to examine the existence of dynamic linkages among the major emerging stock markets, namely Brazil, Hungary, China, Taiwan, Poland, and Turkey, as well as developed markets, particularly the US, the UK, and Germany during the period 2004-2013. Potential dynamic long-run interdependencies are investigated using Johansen and Juselius (1990) multivariate cointegration test and causal relationship through the Vector Error Correction Model (VECM). Moreover, to capture the impact of the recent global crisis on the cointegrating relationship among the developed and emerging markets, the sample period is divided into pre- and post-crisis sub periods. The empirical findings show that, after the crisis period, the direction of the long-run relationship varies, and furthermore, the stock market interdependence increases, supporting herding behavior of investors during the stock market crash period. Therefore, the increasing dynamic co-movements in the period after the crisis provide direct implications for the international investors due to potential limitation in the international risk diversification and the achievement of greater portfolio returns through global investment.