US equity market will not be affected by any foreign market crises

We study financial market contagion by applying the volatility index and the correlation between global markets.

The first discovery is that it is difficult for any foreign economic crisis to spread to the US equity market. US market may be slightly affected and drops 1%-5%. However, when this event happens, it is usually a good buyback opportunity.

Another discovery is that when there is an economic crisis in the US, the fear must spread to all global markets. In US financial crises, it often said, “all correlations go to 1.” Francois Longin and Bruno Solnik (2001) used “extreme value theory” to derive the distribution of extreme correlation between US, European, and Asian stock markets. They found that the S&P 500 seemed to lead the other two markets in terms of extreme positive or negative returns. Therefore, investing in other equity markets during the US financial crisis doesn’t reduce losses.

Data:
1997 Asian financial crisis
1998 Russian financial crisis
1999 Argentina economic crisis
2000 US Tech Bubble
2008 US financial crisis
2009 Spanish financial crisis
2010 European debt crisis
2010 Greece crisis
2011 Japanese earthquake
2014 Russian crisis
2015 Chinese market crisis
2018 Turkish crisis
2019 Argentina crisis

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This material has been provided to you solely for information purposes and does not constitute an offer or solicitation of an offer or any advice or recommendation to purchase any securities or other financial instruments and may not be construed as such. The factual information set forth herein has been obtained or derived from sources believed by the author and Matroid Evolved (“ME”) to be reliable but it is not necessarily all-inclusive and is not guaranteed as to its accuracy and is not to be regarded as a representation or warranty, express or implied, as to the information’s accuracy or completeness, nor should the attached information serve as the basis of any investment decision. The information set forth herein has been provided to you as secondary information and should not be the primary source for any investment or allocation decision. Past performance is not a guarantee of future performance. This document is not research and should not be treated as research. This documen...

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