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The Impact of US Subprime Crisis on SEMDEX

  • Indranarain Ramlall
Chapter

Abstract

It is a widely known fact in the world that global stock markets act as the main driving force for the evolution of stock markets in both developing and emerging markets. For instance, Pagan and Soydemir (2000) found evidence that US stock markets generated robust impacts on Latin American markets with pronounced effects noted in the case of Mexico. SEMDEX is no exception to this state of affairs. An analysis is made to gauge the effects of foreign stocks markets on SEMDEX based on the use of various econometric techniques such as granger causality, vector error correction models, variance decomposition and impulse response analyses. To sieve out any distinctive impacts both prior to and post the crisis, two specific time periods were used – namely, the pre-crisis period which spanned from January 2001 to January 2008. The post-crisis era occurred during the period February 2008 to January 2009. This latter is the final time period as the study was undertaken in the period January 2009. Nonetheless, the main objective is to bring to light how the crisis might have a significant impact on the performance of SEMDEX in just over one year. The following stock markets were considered for the analysis: DJIA, NASDAQ, FTSE, CAC-40, DAX, NIKKEI 225 and JSE. The ultimate aim of the analysis is to assess whether international portfolio diversification was subject to bearish forces once the crisis broke out. In fact, during crisis times, stock markets tend to co-move with stronger momentum relative to non-crisis periods so that the ability of investors to harness international portfolio diversification benefits is significantly being muted down.

Keywords

Stock Market Unit Root Test Granger Causality Vector Error Correction Model Cointegrating Vector 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© The Author(s) 2017

Authors and Affiliations

  • Indranarain Ramlall
    • 1
  1. 1.University of MauritiusMokaMauritius

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