Empirical essays on stock market linkages

Understanding the dynamics of stock market linkages is of paramount importance for global investors, portfolio managers and policy makers. The main objective of this doctoral dissertation is to analyze the time-varying co-movement dynamics across international equity markets. The thesis consists of four independent empirical essays. The first essay investigates the dynamic correlations between emerging and developed markets, paying special attention to the effects of recent and extant financial and debt crises. The results show that the level of correlations significantly increases during the crisis episodes and these crises induce contagion effects. The second essay focuses on extending a directional spillover methodology by using asymmetric price ranges. The empirical findings suggest that downside risks dominate upward risks in cross-market spillovers. We also find that asymmetric spillovers are episodic; the magnitude of asymmetries is quite small after the global crisis of 2008 compared to the pre-crisis period. The third essay examines stock market integration at the regional level and conducts an equicorrelation measure. Focusing on six different regions, the results provide evidence of increased intra-regional linkages over the entire study period. We also investigate conditional diversification benefits and find that these benefits significantly diminish in the last years, particularly for the developed regions. The last essay focuses on the macroeconomic, cultural and geographic determinants of stock market synchronization in G7 economies. The results reveal that real macroeconomic convergence, global shocks and geographical proximity are more important in determining equity return linkages than cultural distance.