A Network-Based Approach to Study Returns Synchronization of Stocks: The Case of Global Equity Markets

The synchronization in financial markets has increased during the rise of global markets. Nevertheless, global shocks provoke high levels of returns synchronization that jeopardize market stability. Using correlation-based networks, regressions, and VAR models, we measure and estimate the effect of...

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Autores principales:	Jaime F. Lavin, Mauricio A. Valle, Nicolás S. Magner
Formato:	article
Lenguaje:	EN
Publicado:	Hindawi-Wiley 2021
Materias:	Electronic computers. Computer science QA75.5-76.95
Acceso en línea:	https://doaj.org/article/85af32dbd6374fa0b50bb1d7a01d759f
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spelling	oai:doaj.org-article:85af32dbd6374fa0b50bb1d7a01d759f2021-11-22T01:10:55ZA Network-Based Approach to Study Returns Synchronization of Stocks: The Case of Global Equity Markets1099-052610.1155/2021/7676457https://doaj.org/article/85af32dbd6374fa0b50bb1d7a01d759f2021-01-01T00:00:00Zhttp://dx.doi.org/10.1155/2021/7676457https://doaj.org/toc/1099-0526The synchronization in financial markets has increased during the rise of global markets. Nevertheless, global shocks provoke high levels of returns synchronization that jeopardize market stability. Using correlation-based networks, regressions, and VAR models, we measure and estimate the effect of global synchronization on the world equity markets of North America, Latin America, Europe, Asia, and Oceania between July 2001 and April 2020. We find that our measure of global stock synchronization is dynamic over time, its minimums coincide with significant financial shocks, and it shrinks to its minimum levels, indicating that the returns of global markets are moving in a synchronized way. Also, it is a significant and positive factor of regional synchronization. Regional markets react heterogeneously to global synchronization shocks suggesting both local and global factors are sources of synchronization. Our work helps market participants who need to measure, monitor, and manage the synchronization of returns in a parsimonious, dynamic, and empirically tractable way. Our evidence highlights the necessity of including synchronization as a risk factor to assess the decision-making criteria of a broad range of market participants ranging from regulators to investors. To policy-makers, governments, and central banks, our work is a call to incorporate events of high global synchronization into the radar of hazards of the whole market stability.Jaime F. LavinMauricio A. ValleNicolás S. MagnerHindawi-WileyarticleElectronic computers. Computer scienceQA75.5-76.95ENComplexity, Vol 2021 (2021)
institution	DOAJ
collection	DOAJ
language	EN
topic	Electronic computers. Computer science QA75.5-76.95
spellingShingle	Electronic computers. Computer science QA75.5-76.95 Jaime F. Lavin Mauricio A. Valle Nicolás S. Magner A Network-Based Approach to Study Returns Synchronization of Stocks: The Case of Global Equity Markets
description	The synchronization in financial markets has increased during the rise of global markets. Nevertheless, global shocks provoke high levels of returns synchronization that jeopardize market stability. Using correlation-based networks, regressions, and VAR models, we measure and estimate the effect of global synchronization on the world equity markets of North America, Latin America, Europe, Asia, and Oceania between July 2001 and April 2020. We find that our measure of global stock synchronization is dynamic over time, its minimums coincide with significant financial shocks, and it shrinks to its minimum levels, indicating that the returns of global markets are moving in a synchronized way. Also, it is a significant and positive factor of regional synchronization. Regional markets react heterogeneously to global synchronization shocks suggesting both local and global factors are sources of synchronization. Our work helps market participants who need to measure, monitor, and manage the synchronization of returns in a parsimonious, dynamic, and empirically tractable way. Our evidence highlights the necessity of including synchronization as a risk factor to assess the decision-making criteria of a broad range of market participants ranging from regulators to investors. To policy-makers, governments, and central banks, our work is a call to incorporate events of high global synchronization into the radar of hazards of the whole market stability.
format	article
author	Jaime F. Lavin Mauricio A. Valle Nicolás S. Magner
author_facet	Jaime F. Lavin Mauricio A. Valle Nicolás S. Magner
author_sort	Jaime F. Lavin
title	A Network-Based Approach to Study Returns Synchronization of Stocks: The Case of Global Equity Markets
title_short	A Network-Based Approach to Study Returns Synchronization of Stocks: The Case of Global Equity Markets
title_full	A Network-Based Approach to Study Returns Synchronization of Stocks: The Case of Global Equity Markets
title_fullStr	A Network-Based Approach to Study Returns Synchronization of Stocks: The Case of Global Equity Markets
title_full_unstemmed	A Network-Based Approach to Study Returns Synchronization of Stocks: The Case of Global Equity Markets
title_sort	network-based approach to study returns synchronization of stocks: the case of global equity markets
publisher	Hindawi-Wiley
publishDate	2021
url	https://doaj.org/article/85af32dbd6374fa0b50bb1d7a01d759f
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A Network-Based Approach to Study Returns Synchronization of Stocks: The Case of Global Equity Markets

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