MARKET CONTAGION AND CAUSALITY RELATIONSHIPS DURING FINANCIAL DISTRESS: EVIDENCE FROM UNIT ROOT TEST AND GRANGER CAUSALITY ANALYSIS

Abstract

This study aims to investigate market contagion and causality relationships during periods of financial distress. Using a unit root test and Granger causality analysis, the sample periods of December 1, 2007 to June 30, 2009, and January 1, 2020 to December 31, 2021 were examined. Contrary to common perceptions, the empirical evidence did not support market contagions during financial distress. Although a few markets were related, there was little evidence to support widespread contagion. The implications of this study extend the efficient market hypothesis to market efficiency during periods of financial distress, suggesting that financial markets display greater efficiencies during such periods. This study is the first to investigate market contagion during periods of financial distress as per the author's knowledge.