New Economics Papers
on Financial Markets
Issue of 2009‒10‒03
two papers chosen by

  1. Clustering global equity markets with variance ratio tests By Joao A. Bastos; Jorge Caiado
  2. When You’ve Seen One Financial Crisis… By Simon van Norden

  1. By: Joao A. Bastos (CEMAPRE, School of Economics and Management (ISEG), Technical University of Lisbon); Jorge Caiado (CEMAPRE, School of Economics and Management (ISEG), Technical University of Lisbon)
    Abstract: In this paper we employ variance ratio tests of the random walk hypothesis to investigate the interdependence of global equity markets in terms of the predictability of equity index returns and how the clustering pattern has evolved in recent years. The study is based on almost 15 years of daily returns of free float-adjusted market capitalization equity indices from 46 countries. First, we examine the validity of the random walk hypothesis in individual markets using conventional, rank- and sign-based variance ratio tests. Second, we employ multidimensional scaling and clustering techniques to examine the interdependence of variance ratios among equity markets. The empirical findings suggest that multivariate analysis of variance ratios provide significant insights that single variance ratio tests fail to capture. In particular, the results indicate that developed and emerging markets have become considerably more integrated over time.
    Keywords: Random walk hypothesis, Variance ratio tests, Cluster analysis, Multidimensional scaling, Emerging and developed equity markets
    JEL: G14 G15
    Date: 2009–09
  2. By: Simon van Norden
    Abstract: Financial market crises may differ, but severe banking crises typically share many common features. The most recent crisis shares many features with the US Savings and Loan crisis of the 1980s and early 90s as well as some features of the LTCM crisis of 1998. More generally, banking crises are commonly associated with real estate market collapses. Effectively reducing the risk of future crisis requires some combination of reducing the potential size of real estate market collapses and the banking sector’s exposure to real estate losses. <P>Les crises des marchés des capitaux peuvent différer, mais les crises bancaires graves partagent en général de nombreuses caractéristiques. La crise la plus récente ressemble à de nombreux égards à la crise américaine de l’épargne et du crédit (Savings and Loans) des années 80 et du début des années 90, ainsi qu’à la crise LTCM en 1998. De façon plus générale, les crises bancaires sont souvent associées aux effondrements du marché immobilier. Pour réduire efficacement le risque de crises futures, il faut réduire l’ampleur potentielle des effondrements du marché immobilier, diminuer la vulnérabilité du secteur bancaire aux pertes du marché immobilier, ou les deux.
    Keywords: Financial Crisis, banking crisis, bubbles, real estate, financial regulation, regulatory reform , crises financières, crises bancaires, marché immobilier, réglementation financière
    Date: 2009–09–01

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