Table 3
Results for Canadian market: the financial contagion indicator for the different dependent variables (market risk factors), 1990-1992, 1995-1998
The jump of all three financial contagion indicators can be seen at the year 1996. In other periods the financial contagion indicator level was at comparatively low levels. The net maps of the Canadian market financial market interconnections is depicted in the Appendix 6.
Discussion
As M. Brunnermeier, A. Krishnamurthy and G. Gorton notice, “liquidity is central in the dynamics if a financial crisis” (M. Brunnermeier, Krishnamurthy, & Gorton, 2012). In the research three markets were considered in order to obtain the answer if the difference exist between developed and emerging markets in terms of the crisis influence. The first market is Brazil, that experienced crises during the period, the second is Canada, developed economy, those crises were connected mostly with the global volatility, than with the local instability. And the third market is Finland, developed market, that, at the same time, came to the postindustrial stage of economic development considerably not so far.
Macroeconomic variables, that have the role of the dependent, can be interpreted as the market risk factors, as far as they form macroeconomic situation. The factor weight shows in what degree does this particular macroeconomic index has the ability to reflect the situation on the financial market. The whole conclusion that can be made on the base of the three markets research is that the financial contagion level can be described as low (less than 50% in all years considered), so the hypothesis that the financial contagion did existed on that markets in that period should be declined. But the interconnections revealed between variables shows the macroeconomic indicators involvement in the market processes dynamics. As the financial contagion concept is traditionally used in the macroeconomic and financial, in particular, shocks interpretation (Blanchard & Quah, n.d.; Clarida & Gali, 1993; Dąbrowski & Wróblewska, n.d.), this high interconnections density (Appendix 5-7) can be interpreted as the market risk potential. In particular, such macroeconomic variables, that bring the greatest value to the financial contagion growth, can be seen as the market risk potential factors. These are the following:
Metal prices (silver for Finnish market in 1999-2002; gold for Brazilian market in 2008-2010);
Oil prices (for Finnish market in 1999-2002);
Government bonds (for Finnish market in 1999-2002; Brazilian market in 2008-2010);
Money supply (type M1 for Brazilian market in 1997, 2009-2010; demand deposits for Brazilian market in 2008-2010);
Central Bank interest rate (for Brazilian market in 1997, 2008-2010);
Derivatives positions (for Brazilian market in 1997, 2008-2010);
General market indexes (for Brazilian market in 2008-2010);
General market indexes volume of trade (for Canadian market in 1996);
National currency exchange rates (for Canadian market in 1996).
Such macroeconomic indicators as the metal prices and the government bonds are highly involved in the financial contagion level growth in different periods in Finnish and Brazilian markets.
As the financial contagion level wasn’t high in the periods analyzed in the study, the financial contagion indicator can’t be the crises indicator in the whole sense. But as it can be seen from these estimations, the financial contagion level sometimes grows just before the crisis: the correlated-information channel in Finnish market in 1999-2001, 2006, the risk-premium channel in Finnish market in 2005-2006. Also the correlated-information channel in Brazilian market in 2007, the liquidity channel in Brazilian market in 2011-2012 and, especially, the risk-premium channel in Brazilian market in 2010-2012 and all the financial contagion channels in Canadian market in 1997.
During the strategy building process of a company in order to survive in crisis should include the information of the active crisis distribution channels. As the researches stated (Jianying, 2012; Li & Wang, n.d.; Tingting & Zhanglu, n.d.; Valackiene, 2011), the financial contagion indicators were used many times to reveal the potential threats for the company. As three financial contagion distribution channels can be viewed with the use of different dependent variables, the company’s strategy during the crisis periods can be described as the following:
If the most active is the information-correlated channel, the company can face the problems with the investors’ negative expectations. So, it should reevaluate its investment strategy.
If the liquidity channel brings the biggest part in the financial contagion growth, the operational strategy should be reconsidered firstly. The problems the company may face with are the lack of liquidity.
If the risk-premium channel is active, the financial contagion can threat the company through the interest rate growth.
Conclusion
The hypothesis stated at the beginning of the research were accepted. The first hypothesis, told that the financial contagion indicator can help to identify possible factors of financial contagion, was met by the empirical evidence, that the factors of the financial contagion and, probably, market risk, can be revealed throw the financial variables interconnections assessment. The second hypothesis, stated that the financial contagion identified in the research and the crises are correlated positively, needs further investigation. The results obtained show that the financial contagion indicator does correlated with the crises in the markets considered. But, as these three markets can’t provide enough ground to make the conclusions for the financial contagion indicator role as the crises indicator, further research for other markets is needed.
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Appendix 1 - The list of the markets major indices, the components of which were considered in the research
The main stock market indices (Blue Chips) list was obtained from World Federation of Exchanges web page, and the sector indexes were selected on the base of the World Bank World Development Indicators statistics for the value added by different industries in the countries’ GDP (Appendix 3)
Appendix 1 - The list of the markets major indices, the components of which were considered in the research – continued
Appendix 2 - Dependent variables in VAR model
Table 1
The list of the dependent variables for Brazilian market
The financial contagion distribution channel
|
Dependent variables name
|
Variable code
|
Correlated-information channel
|
BM&F Gold-gramme price: 1990-2015
Anbima10 market indexes:
Index of the prefixed federal bonds IFR-M: 2000-2015
Index of the federal bonds tied to the SELIC rate IMA-S: 2004-2015
Index of the federal bonds tied to the IGP-M index IMA-C: 2004-2015
Index of the federal bonds tied to the IGP-M index with maturities below to 5 years IMA-C 5: 2004-2015
Index of the federal bonds tied to the IGP-M index with maturities equal or above 5 years IMA-C 5+: 2004-2015
Index of the federal bonds tied to the IPCA index IMA-B: 2004-2015
Index of the federal bonds tied to the IPCA index IMA-B with maturities below to 5 years IMA-B 5: 2004-2015
Index of the federal bonds tied to the IPCA index IMA-B with maturities equal or above 5 years IMA-B 5+: 2004-2015
General Index IMA-General: 2004-2015
Index of prefixed federal bonds with maturities below to 1 year IFR-M 1: 2000-2015
Index of prefixed federal bonds with maturities equal or above 1 year IFR-M 1+: 2000-2015
|
gold
IFRM
IMAS
IMAC
IMAC5l
IMAC5o
IMAB
IMAB5l
IMAB5o
IMA
IFRM1l
IFRM1o
|
Liquidity channel
|
Rio de Janeiro stock market (BVRJ) – total amount: 1990-1999
Financial Investment Fund positions:
FIF 30 – Derivatives positions (futures market): 1996-1998
FIF 30 – Derivatives positions (options market): 1996-1998
FIF 30 – Derivatives positions (swap): 1996-1998
FIF 60 – Derivatives positions (futures market): 1996-1998
FIF 60 – Derivatives positions (options market): 1996-1998
FIF 60 – Derivatives positions (swap): 1996-1998
Operations with federal securities: 1991-2015
Derivatives operations-adjustments: 2002-2015
Demand deposits: 1991-2015
Money supply type M1: 1991-2015
|
BVRJ
FIF30f
FIF30o
FIF30s
FIF60f
FIF60o
FIF60s
federal
derivative
deposits
M1
|
Risk-premium channel
|
Special Clearance and Escrow System interest rate (selic)11: 1990-2015
Average One-Day Interbank Deposit rate (CDI)12: 1990-2015
Banco Central do Brasil interest rates:
reference rate13: 1991-2015
base financial rate: 1995-2015
|
selic
cetip
tr
tbf
|
|
