The Financial Market Stability: Southeast Asia, BRIC and Latin America

This research aims to first, determine the correlation between the stock market and financial stability. Second, to determine the correlation between stock market and liquidity availability. Both are conducted in the implementation period of quantitative easing of US in 2008. The research is conducted in eight countries: United States, Indonesia, Malaysia, Thailand, Brazil, Russia, India, and Latin America. The national composite index for each country was used to capture the condition of stock market as a dependent variable. The VIX was used as a proxy o financial market stability in the US, and TED spread as a proxy for liquidity availability. Sample will be divided into three different periods based on the implementation of QE1, QE2, and QE3. The DCC model was employed in this research to capture the dynamic movement between variables studied. Results show there are stronger significant influence on VIX correlation with stock indexes in US, Indonesia, Thailand, Brazil, India, and Latin America rather than the correlation on TED spreads, which is only found significant in Russia in the QE1 period. This indicates financial stability affecting investor choice of investment.