New Economics Papers
on Financial Markets
Issue of 2013‒11‒29
five papers chosen by

  1. Equity Market Contagion during the Global Financial Crisis: Evidence from the World’s Eight Largest Economies By Dungey, Mardi; Gajurel, Dinesh
  2. Stock Market Trend Analysis Using Hidden Markov Models By G. Kavitha; A. Udhayakumar; D. Nagarajan
  3. Liquidity Issues in Indian Sovereign Bond Market By Nath, Golaka
  4. Sovereign Risk and Belief-Driven Fluctuations in the Euro Area By Giancarlo Corsetti; Keith Kuester; André Meier; Gernot J. Mueller
  5. South African Capital Markets: An Overview By Shakill Hassan

  1. By: Dungey, Mardi (School of Economics and Finance, University of Tasmania); Gajurel, Dinesh (School of Economics and Finance, University of Tasmania)
    Abstract: The global financial crisis (2007-2009) saw sharp declines in stock markets around the world, affecting both advanced and emerging markets. In this paper we test for the existence of equity market contagion originating from the US to advanced and emerging markets during the crisis period. Using a latent factor model, we provide strong evidence of contagion effects originating in US equity markets to equity markets in both the advanced and emerging economies. In the aggregate equity market indices contagion from the US explains a large portion of the variance in stock returns in both advanced and emerging markets. However, evidence from the financial sector indices finds less evidence of contagion than the total indices, and this is particularly the case for the developed markets. This suggests that contagion effects are not strongly related to high levels of global integration.
    Keywords: Global financial crises; financial contagion; financial markets; advanced countries; emerging countries
    JEL: F41 C51 C32
    Date: 2013–10–16
  2. By: G. Kavitha; A. Udhayakumar; D. Nagarajan
    Abstract: Price movements of stock market are not totally random. In fact, what drives the financial market and what pattern financial time series follows have long been the interest that attracts economists, mathematicians and most recently computer scientists [17]. This paper gives an idea about the trend analysis of stock market behaviour using Hidden Markov Model (HMM). The trend once followed over a particular period will sure repeat in future. The one day difference in close value of stocks for a certain period is found and its corresponding steady state probability distribution values are determined. The pattern of the stock market behaviour is then decided based on these probability values for a particular time. The goal is to figure out the hidden state sequence given the observation sequence so that the trend can be analyzed using the steady state probability distribution( ) values. Six optimal hidden state sequences are generated and compared. The one day difference in close value when considered is found to give the best optimum state sequence.
    Date: 2013–11
  3. By: Nath, Golaka
    Abstract: Liquidity is one of the most important factors after credit risk that affects the bond yields. The paper uses various measures of liquidity to understand their determinants in Indian sovereign bond market. The Liquidity measured by parameters like Turnover Ratio and Amihud Illiquidity Indicator show that these parameters not only have instantaneous relationship with bond yield but contemporaneous relationship with themselves. Impact Cost is not found to have any explanatory power. Financial crisis had marginal impact on the Indian sovereign bond market. It functioned well during the crisis period without much deterioration in general market liquidity condition as RBI injected large amount of liquidity to the system within a limited time period to ensure stability in the financial markets in India. However, the notion of flight to safety was evident as traders started investing largely in Government bonds shunning credit products as the credit quality in general started to dip. This was duly supported by large issuances of Government bonds. The study also finds that the electronic order matching system for government bonds has been successful in improving liquidity and reducing volatility in the market.
    Keywords: liquidity, liquidity premium, bond yield, Indian Sovereign Bonds, Impact Cost, Turnover Ratio, NDS-OM, Liquidity Adjustment Facility
    JEL: C58 E43 E44 G12
    Date: 2013–05–18
  4. By: Giancarlo Corsetti; Keith Kuester; André Meier; Gernot J. Mueller
    Abstract: Sovereign risk premia in several euro area countries have risen markedly since 2008, driving up credit spreads in the private sector as well. We propose a New Keynesian model of a two-region monetary union that accounts for this “sovereign risk channel.†The model is calibrated to the euro area as of mid-2012. We show that a combination of sovereign risk in one region and strongly procyclical fiscal policy at the aggregate level exacerbates the risk of belief-driven deflationary downturns. The model provides an argument in favor of coordinated, asymmetric fiscal stances as a way to prevent selffulfilling debt crises.
    Keywords: Sovereign debt;Euro Area;Fiscal risk;Risk premium;Fiscal policy;Monetary policy;Economic models;Sovereign risk channel, monetary union, euro area, zero lower bound, risk premium, pooling of sovereign risk
    Date: 2013–11–06
  5. By: Shakill Hassan
    Abstract: This paper presents a overview and discussion of facts and research findings on South African equity, currency, bond and derivatives markets. It is not a comprehensive literature review, but rather an assessment of where we stand - how the markets have developed, how the main markets compare internationally, what do we have a firm understanding of, and what are (some of) the areas in most evident need for further research.
    Keywords: Bonds, derivatives, emerging markets, equities, foreign exchange, market value, turnover
    JEL: G10 F31
    Date: 2013

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