The Impacts Of The U.S. Financial Crisis On Financial Markets In Asia And Europe

Abstract

This study is to examine the impacts of the U.S. financial crisis (2008) on a few financial markets in Asia and Europe in the framework of vector auto-regressive model. This study uses daily returns of the stock market indexes during January 2005-February 2010. Some important findings are: 1) the U.S. market became more integrated with Asian markets during the crisis but less integrated with European markets; 2) the U.S. influence remained strong in both Asia and Europe during the U.S. crisis; 3) the speed of adjustments increased in some markets but decreased in other markets; and 4) there were observed strong spillover effects from the U.S. to other markets during the crisis. The overall results suggest that there still exist much diversification benefits to be exploited in European markets but not much in Asian market.