U.S. subprime financial crisis contagion on BRIC and European Union stock markets

ABSTRACTThe Copula Theory was used to analyze contagion among the BRIC (Brazil, Russia, India and China) and European Union stock markets with the U.S. Equity Market. The market indexes used for the period between January 01, 2005 and February 27, 2010 are: MXBRIC (BRIC), MXEU (European Union) and MXUS (United States). This article evaluated the adequacy of the main copulas found in the financial literature using log-likelihood, Akaike information and Bayesian information criteria. This article provides a groundbreaking study in the area of contagion due to the use of conditional copulas, allowing to calculate the correlation increase between indexes with non-parametric approach. The conditional Symmetrized Joe-Clayton copula was the one that fitted better to the considered pairs of returns. Results indicate evidence of contagion effect in both markets, European Union and BRIC members, with a 5% significance level. Furthermore, there is also evidence that the contagion of U.S. financial crisis was more pronounced in the European Union than in the BRIC markets, with a 5% significance level. Therefore, stock portfolios formed by equities from the BRIC countries were able to offer greater protection during the subprime crisis. The results are aligned with recent papers that present an increase in correlation between stock markets, especially in bear markets.

Fluxos de capitais, fragilidade externa e regimes cambiais: uma revisão teórica

Capital Flows, External Fragility and Currency Regimes: A Theoretical Review. The major integration and deregulation of the international financial markets increased the degree of interdependence and risk of incompatibility between the financial and monetary policy adopted by different countries. The consequences of these facts are the financial instability and the currency crisis. In this article we develop arguments advocating that independent of the currency regime adopted the national policy makers should take into account, between other factors, the major capital mobility and the integrations of markets. One of the corollaries of our analyses is that countries should pursue policies that reduces the degree of short-term capital volatile by the adoption of capital controls or though measures of prudential supervision.

Emerging markets and the international financial architecture: a blueprint for reform

If emerging markets are to achieve their objective of joining the ranks of industrialized, developed countries, they must use their economic and political influence to support radical change in the international financial system. This working paper recommends John Maynard Keynes's "clearing union" as a blueprint for reform of the international financial architecture that could address emerging market grievances more effectively than current approaches. Keynes's proposal for the postwar international system sought to remedy some of the same problems currently facing emerging market economies. It was based on the idea that financial stability was predicated on a balance between imports and exports over time, with any divergence from balance providing automatic financing of the debit countries by the creditor countries via a global clearinghouse or settlement system for trade and payments on current account. This eliminated national currency payments for imports and exports; countries received credits or debits in a notional unit of account fixed to national currency. Since the unit of account could not be traded, bought, or sold, it would not be an international reserve currency. The credits with the clearinghouse could only be used to offset debits by buying imports, and if not used for this purpose they would eventually be extinguished; hence the burden of adjustment would be shared equally - credit generated by surpluses would have to be used to buy imports from the countries with debit balances. Emerging market economies could improve upon current schemes for regionally governed financial institutions by using this proposal as a template for the creation of regional clearing unions using a notional unit of account.

The concept of emerging power in international politics and economy

ABSTRACT This paper aims to analyze the concept of emerging power established to the understanding of international affairs. The work observes that the use of the lexicon emerging - regarding to markets, countries or powers - as qualifier for a range of international relations phenomena became a constituent part of the matter. In spite of that, the empirical denotation of the predicate is ahead of the amount of efforts on its theoretical contextualization. Our methodological hypothesis is that the rational denial of the concepts prevailing connotative spectrum by acknowledging the embedded wisdom about cognate phenomena synthesizes a theoretical framework on its accurate use.