The effect of the global economic crisis of 2008 on financial markets: A study of fragile five countries

Economic crisis is known as a situation which occurs in the economic system and distrupts its process. In course of time, perspectives of economic schools to economic crises and their sources differ from each other. 2008 Global Finance Crisis has started in mortgage market of the USA, grown since the disruption of back payments of loans, and spread around the world in time. Emerging economies were relatively less affected by the crisis. Morgan Stanley has recently declared Brazil, India, Indonesia, South Africa and Turkey as the "Fragile Five" because of that the vulnerability of the currencies against US Dolar. In this regard, our aim is to investigate the cointegration and causal relationships between equity markets of Fragile Five countries. We use monthly time series from January 2005 to December 2015. In the first step, we use ADF and PP unit root tests and see all variables are stationary in their first differences. Then we utilize Johansen cointegration test to show long-run relationships between the variables. Test results suggest that our variables move together in the long-run. In the next step, we estimate a VECM to reveal the short-run and the long-run causal relationships. Every lagged error correction term is found statistically significant. Then, we decide that they have long-run causal relationships. Coefficients of lagged error correction terms that range between -0.0041 and -0.0103. show . We also find causality relations in the short and long run between fragile five stock markets. Key Words: Economics Crises, Global Crises, Equity Markets, Fragile Five Countries,Cointegratıon, causal relationships