Contagion and US macro-economic policy uncertainty analysis in Asian stock markets

Abstract

This thesis, in the first part, examines the stock markets relationship between U.S. and seven Asian countries (China, India, Indonesia, Malaysia, Pakistan, Philippines, Thailand) using dynamic rolling window estimation approach. Monthly stock prices for the period 1995-2018 are used for the analysis. I find a significant increase in the cross-market correlation between U.S. and Asian stock markets during the subprime crisis. In the second, part I extend this analysis taking eight U.S. macroeconomic variables. Then, I study the relationship between changes in the U.S. macroeconomic variables conditions and Asian financial markets. I divide the samples into two sub-periods: before the crisis and after the crisis. In particular, I apply a Granger causality test on U.S. macroeconomic variables and Asian financial markets. After the crisis period sample, I find evidence of causal relationship but before the crisis period sample, there is no evidence of a causal relationship between U.S. macroeconomic variables and Asian financial markets. Afterward, I use Ordinary Least Square (OLS) method to identify the significance of a relationship between U.S. macroeconomic variables and Asian financial markets. Most of the cases the results are consistence with the Granger-causality test results.