Interdependence of Stock Markets Before and After the Global Financial Crisis of 2007

In this study we analyse the evolution of interdependence and relative influence of major international stock markets in the three main geographical regions of USA, Europe and Asia around the Global Financial Crisis (GFC) of 2007. Using the framework of the Foreign Information Transmission (FIT) model of Ibrahim and Brzeszczyński (2009) we first investigate changes around the crisis in the direct channels of information transmission (meteor showers) across the three major markets of New York, London and Tokyo in these regions. We then investigate changes in the indirect channels of information transmission by analysing the influence of certain factors that are expected to impact the relations between these stock trading centres. These factors are the differential in trading volume, the differential in stock price volatility and the interest rate differential. The results are robust to different models' specifications, and indicate that the role of the USA market as the influencer of stock price movements in other markets has weakened after the GFC, while the role of the other two trading centres of the UK and Japan has strengthened. Our findings are consistent with the explanation related to the shift in balance of economic powers between countries