Stock Markets Connectedness

Abstract

The increase in political, economic and financial integration between countries affect the international market linkages. As a result of globalization in finance, a financial crisis occurred in one country can easily spread to other countries. This thesis examines the connectedness between stock markets of both developed and developing countries in different regions. We analyze stock market returns data from January 1, 1997, to August 18, 2017, which include significant turmoil times, and use a new methodology, Diebold and Yilmaz Connectedness Index (2011), to measure static and dynamic connectedness of financial markets. Our results show that the U.S. stock market is the most influencing markets on the other markets in different regions. Additionally, turmoil periods have significant effects on connectedness between stock markets. In conclusion, it is important to monitor and measure stock market connectedness for both portfolio investors and policymakers.