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Dynamics of Contagion Risk Among World Markets in Times of Crises: A Financial Network Perspective

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Abstract

This study used a Time-Varying Parameter VAR approach to analyze contagion risk among global stock markets and WTI crude oil during times of crisis. The examined markets included the United States, the Eurozone, the United Kingdom, China, Japan, India, Russia, and select MENA stock markets. The research highlighted the importance of dynamic metrics in assessing financial networks and crisis contagion risk, an area that has received limited attention in previous studies. The evidence demonstrates rapid and dynamic financial contagion resulting from lockdown measures, the spread of COVID-19, and the Russia–Ukraine war. The U.S. and major European markets were identified as net global contributors, while Chinese and MENA equity markets acted as net receivers. Furthermore, the origin of oil shocks was more likely attributed to Russian and Saudi markets. This research carries policy implications for policymakers and investors, emphasizing the importance of shock and contagion effects in portfolio diversification and risk hedging, particularly during times of crisis.

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Notes

  1. OPEC Member Countries’ historical production data, https://www.opec.org/opec_web/en/data_graphs/335.htm.

  2. Regional Economic Outlook for the Middle East and Central Asia, IMF, October 2022. https://www.imf.org/en/Publications/REO/MECA/Issues/2022/10/13/regional-economic-outlook-mcd-october-2022.

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Authors and Affiliations

  1. Ministry of Economy and Finance, Rabat, Morocco

    Karim Belcaid

  2. Faculty of Economics and Management, Ibn Tofail University, Kénitra, Morocco

    Sara El Aoufi

  3. School of Accounting, Economics and Finance, Faculty of Business and Law, University of Portsmouth, Portsmouth, UK

    Mamdouh Abdulaziz Saleh Al-Faryan

  4. Consultant in Economics and Finance, Riyadh, Saudi Arabia

    Mamdouh Abdulaziz Saleh Al-Faryan

  5. PhD in Financial Economics, Mohammed V University, Rabat, Morocco

    Karim Belcaid

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  1. Karim Belcaid
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  2. Sara El Aoufi
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Correspondence to Karim Belcaid.

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Belcaid, K., El Aoufi, S. & Al-Faryan, M.A.S. Dynamics of Contagion Risk Among World Markets in Times of Crises: A Financial Network Perspective. Asia-Pac Financ Markets (2023). https://doi.org/10.1007/s10690-023-09439-2

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