Determinants of stock market comovements among US and emerging economies during the US financial crisis

Abstract

This paper investigates the relationship between the stock returns of ten emerging economies with that of the US. By examining DCC-GARCH model and Bai-Perron method, to examine stock market contagion and herding behavior, we analyzed three types of different dynamic behavior of stock market interactions decided by number of breaks after crisis period. We proposed DCCX model to find determinants of DCCs between US and emerging country markets. It is shown that an increase in the CDS spread and TED spreads decrease conditional correlations while increase in VIX index of S&P 500 and foreign institutional investment increase conditional correlations.