۱- Introduction

۲- Data

۳- Methodology

۴- Results

۵- Concluding remarks

References

Abstract

The aim of this paper is to analyze the stock exchanges for a large set of countries (20 in total) before and after the subprime crisis, identifying which markets are the most central and if the linkage pattern changed after the crisis. We started by calculating the correlations between stock markets’ returns, using the DCCA, in order to identify if there is some variation in the scale between the links in the different stock markets of the network, in both periods. Additionally, a cross-correlation filtering process will be performed with the intention of identifying which countries have stronger relationships according to the used time scales. The results show the central role of European markets among the world’s main financial markets, mainly France, Germany and the United Kingdom. Moreover, after the subprime crisis we find the formation of two large communities, one of European and American countries and the other formed by Asian countries plus Australia, while in the pre-crisis period three communities could be identified. It is possible to conclude that after the 2008 crisis the connectivity and integration of the network for the whole set of analyzed timescales increased.

Introduction

Financial markets move trillions of USD annually, and understanding their dynamics is of vital importance to the world economy, for several types of economic agents: actual or potential investors, managers of firms and of mutual funds, for economic authorities and also for policy makers. The fact that any information coming from financial markets could be used, for example, to prevent financial crises or to improve the financial system underlines the importance of continuing to study these markets. In the context of financial markets, stock market integration is a much studied topic in the financial literature and also a very broad one, not only with a vast amount of literature but also using different methodologies to assess the evolution of stock market integration. So, it is firstly important to identify a general overview about integration, as well as its advantages and disadvantages. Stock market integration is a particular aspect of the broader issue of financial integration. As a whole, if markets are more integrated, this is expected to boost countries’ growth, allowing citizens to increase their well-being. This is due, for example, to the fact that more integrated markets could cause better savings allocation (see, amongst many others, [1] or [2]). However, authors also recognize that, despite these potential advantages, increased market integration could have a negative effect because this potentiates greater financial instability and financial contagion (see, for example, [3]). The fact that economies increase their interdependence could heighten these effects [4]. Authors such as Bekaert et al.