Has 1997 Asian Crisis increased Information Flows between International Markets

The Asian crisis started on July 2, 1997 and caused turmoil in developed as well as emerging international stock markets. The objective of this paper is to analyse the movements and dynamic relationships among stock markets, together with their implications for information flows. We use the Morgan Stanley National and International Indexes (MSCI). These indexes refer to four geographic areas (Asia, Europe, North America and Latin America) for two homogeneous and non-overlapping time intervals. The econometric techniques used in this paper include the cointegration test, vector autoregression analysis, forecast error variance decomposition and impulse-response relationships. Our results show that: i) there are no multivariate cointegration relationships across markets, ii) the leadership role played by the U.S. became stronger after the crisis, iii) the response of Asian markets to external markets is more relevant than vice versa, especially after the crisis, iv) the degree of integration, in Phylaktis (1999) sense, between Asian and the rest of the international stock markets has increased after the crisis and, finally, v) the contagion effect determines significantly the dynamic relationships between international stock markets.