Financial Integration In A DCC-GARCH Approach: Implications On The Crisis.

Abstract

The financial crisis that has plagued the world since 2007 has significantly influenced the modern economic world. This happened because of the financial integration and globalization between the various countries and economies. As a consequence, understanding this phenomenon is very important for the whole comprehension of the economic world and the causes that led to such a crisis.The aim of this work is to show through an econometric model how the financial integration is connected with the contagion that has spread since Lehman Brothers went bankrupt and the house price bubble burst. More specifically, there are used the GARCH model and one of his specification: the DCC-GARCH model. Appling these models to some variables, such as bonds, cash index, utilities index, industrials index and corporate index, it is examined how they are connected with each other, and demonstrated, in accordance with the theoretical implications of financial integration, that they move with the same trend. The results are shown here, and it is possible to see that the variables move together and have a downfall during the crisis. This is because the financial integration moves, in each country and sector considered in this thesis, with the same trend.