Shocks that shook the world : how emerging & developed economies react in moments of crisis : a cross examination of the BRICS & G7 nations
Bentley, Joseph (2020-12-17)
J. Bentley
17.12.2020
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Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi:oulu-202012183458
https://urn.fi/URN:NBN:fi:oulu-202012183458
Tiivistelmä
This paper examines 19 major events which include (7) financial crises, (7) terror attacks, and (5) natural disasters over the past three decades and the impact on the financial markets of the BRICS and G7 bloc of nations. The BRICS, emerging nations, comprise of Brazil, Russia, India, China, and South Africa, whilst the G7 developed nations comprise of the US, UK, Canada, France, Germany, Italy, and Japan.
The analysis on how 19 catastrophic events affect the BRICS and G7 economies was conducted using an Event Study Methodology implementing the Market Adjusted Model. The methodology popularized by Fama, examines the Abnormal Returns (ARs), Average Abnormal Returns (AARs), Cumulative Abnormal Return (CARs), and Cumulative Average Abnormal Returns (CAARs) to determine if there are statistical significances using the t-statistical significance tests over an event window of (-5, +5). Returns of the market indices are obtained from Yahoo Finance for Brazil’s returns and Thomas Reuters DataStream for the remaining 11 for the period between 1989 to 2018. The indices are benchmarked against the MSCI All Country World Index (ACWI) Index, which captures large and mid-caps across 23 developed and 26 emerging markets, covering approximately 85% of equities markets globally.
We find that emerging economies (BRICS) react stronger to financial crises and terrorist attacks and for a prolonged period in comparison to those of the developed nations (G7). Furthermore, it was found that there was no statistical significance in neither the BRICS nor G7 nations during natural disaster events, apart from The Great Tōhoku (Fukushima) Earthquake and Tsunami in Japan. Moreover, this study shows a contamination effect between nations that share a geographical, and more importantly, trade partnership, but this spill-over effect has reduced over time as market participants have become more acquainted and resilient to these events occurring, especially with terror attacks.
The analysis on how 19 catastrophic events affect the BRICS and G7 economies was conducted using an Event Study Methodology implementing the Market Adjusted Model. The methodology popularized by Fama, examines the Abnormal Returns (ARs), Average Abnormal Returns (AARs), Cumulative Abnormal Return (CARs), and Cumulative Average Abnormal Returns (CAARs) to determine if there are statistical significances using the t-statistical significance tests over an event window of (-5, +5). Returns of the market indices are obtained from Yahoo Finance for Brazil’s returns and Thomas Reuters DataStream for the remaining 11 for the period between 1989 to 2018. The indices are benchmarked against the MSCI All Country World Index (ACWI) Index, which captures large and mid-caps across 23 developed and 26 emerging markets, covering approximately 85% of equities markets globally.
We find that emerging economies (BRICS) react stronger to financial crises and terrorist attacks and for a prolonged period in comparison to those of the developed nations (G7). Furthermore, it was found that there was no statistical significance in neither the BRICS nor G7 nations during natural disaster events, apart from The Great Tōhoku (Fukushima) Earthquake and Tsunami in Japan. Moreover, this study shows a contamination effect between nations that share a geographical, and more importantly, trade partnership, but this spill-over effect has reduced over time as market participants have become more acquainted and resilient to these events occurring, especially with terror attacks.
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