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International Portfolio Diversification Benefits among Developed and Emerging Markets within the Context of the Recent Global Financial Crisis

International Portfolio Diversification Benefits among Developed and Emerging Markets within the Context of the Recent Global Financial Crisis

Gülin Vardar, Berna Aydoğan, Ece Erdener Acar
Copyright: © 2014 |Pages: 24
ISBN13: 9781466651548|ISBN10: 1466651547|EISBN13: 9781466651555
DOI: 10.4018/978-1-4666-5154-8.ch013
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MLA

Vardar, Gülin, et al. "International Portfolio Diversification Benefits among Developed and Emerging Markets within the Context of the Recent Global Financial Crisis." Handbook of Research on Strategic Business Infrastructure Development and Contemporary Issues in Finance, edited by Nilanjan Ray and Kaushik Chakraborty, IGI Global, 2014, pp. 162-185. https://doi.org/10.4018/978-1-4666-5154-8.ch013

APA

Vardar, G., Aydoğan, B., & Acar, E. E. (2014). International Portfolio Diversification Benefits among Developed and Emerging Markets within the Context of the Recent Global Financial Crisis. In N. Ray & K. Chakraborty (Eds.), Handbook of Research on Strategic Business Infrastructure Development and Contemporary Issues in Finance (pp. 162-185). IGI Global. https://doi.org/10.4018/978-1-4666-5154-8.ch013

Chicago

Vardar, Gülin, Berna Aydoğan, and Ece Erdener Acar. "International Portfolio Diversification Benefits among Developed and Emerging Markets within the Context of the Recent Global Financial Crisis." In Handbook of Research on Strategic Business Infrastructure Development and Contemporary Issues in Finance, edited by Nilanjan Ray and Kaushik Chakraborty, 162-185. Hershey, PA: IGI Global, 2014. https://doi.org/10.4018/978-1-4666-5154-8.ch013

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Abstract

This chapter aims to examine the existence of dynamic linkages among the major emerging stock markets, namely Brazil, Hungary, China, Taiwan, Poland, and Turkey, as well as developed markets, particularly the US, the UK, and Germany during the period 2004-2013. Potential dynamic long-run interdependencies are investigated using Johansen and Juselius (1990) multivariate cointegration test and causal relationship through the Vector Error Correction Model (VECM). Moreover, to capture the impact of the recent global crisis on the cointegrating relationship among the developed and emerging markets, the sample period is divided into pre- and post-crisis sub periods. The empirical findings show that, after the crisis period, the direction of the long-run relationship varies, and furthermore, the stock market interdependence increases, supporting herding behavior of investors during the stock market crash period. Therefore, the increasing dynamic co-movements in the period after the crisis provide direct implications for the international investors due to potential limitation in the international risk diversification and the achievement of greater portfolio returns through global investment.

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