Dynamic linkages of stock prices among G7 countries: effects of the American financial crisis

In this paper, we use the cross-correlation function developed by Cheung and Ng (1996) to investigate the dynamic linkages among G7 countries in the mean and volatility of stock prices from June 2, 2003, through July 31, 2010. In particular, we examined the impact of the American financial crisis, which erupted in the US in September 2008 as a result of the sub-prime loan losses of 2007. The sample period is divided into two-the pre-and post-crisis periods-in order to study the causal relationship in mean and volatility. Our research has shown that the international transmission of stock market indices among G7 countries weakened in the mean but became stronger in volatility through the 2007-2008 American financial crisis.