IRFA_Cagliesi_Guidi.pdf (1.14 MB)
A three-tiered nested analytical approach to financial integration: the case of emerging and frontier equity markets
journal contribution
posted on 2023-06-09, 23:15 authored by Gabriella Cagliesi, Francesco GuidiThis study investigates the patterns of integration of emerging and frontier equity markets with the US stock market during the period 2002–2014 characterised by financial turmoil and instability. To add rigour to the study, to overcome the limitations of simple correlation analysis of integration, and to produce more robust results, we propose a nested analytical approach based on a three-tiered research design. The first level uses the smooth transition conditional correlations among the US, emerging, and frontier markets. The second tier uses the results of the smooth transition approach to creating different international portfolios, which, based on alternative investment strategies, account for the time-varying correlations among markets and exploit the scope of international diversification with less integrated markets. Finally, the last tier of analysis uses returns and risks of these different international portfolios and applies structural models to explore characteristics and integration patterns in turbulent times. The three nested approaches indicate that the global financial crisis has produced a permanent increase in the degree of integration among the US and frontier markets. Conversely, the crisis's effect seems to have been only temporary in the case of integration among the US and emerging equity markets. Despite the changes brought by the crisis, the degree of integration among emerging markets and the US market is considerably more significant than the degree of integration among frontier and US markets. The novelty of this methodological approach enables us to provide some original contributions and empirical results that are robust and relevant to investors in international markets.
History
Publication status
- Published
File Version
- Accepted version
Journal
International Review of Financial AnalysisISSN
1057-5219Publisher
ElsevierExternal DOI
Volume
74Page range
1-29Article number
a101698Department affiliated with
- Economics Publications
Full text available
- Yes
Peer reviewed?
- Yes
Legacy Posted Date
2021-03-05First Open Access (FOA) Date
2022-07-29First Compliant Deposit (FCD) Date
2021-03-05Usage metrics
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