Financial Contagion and Oil Crisis : A Factor Analysis

Abstract

Maya TURKI*

During the actual oil crisis, the Brent crude oil price has collapsed falling below 40$ .The paper tries to answer the following question : could the oil price crisis generate a financial contagion jump?. The financial contagion is intended to be the co-movements of stock market returns as resulting of a shock or crisis. The study period is composed of two sub periods ;a quiet period from 3/01/2012 to 01/08/2014 and turbulent period from 04/08/2014 to 25/05/2016.Raw data consists of daily stock market indexes prices of the FTSE 100 , SP 500, Nikkei, hang seng, DAX, CAC40, S&P/ CITIC300, BSE Sensex 30, Bovespa, FTSE SOUTH AFRICA, FTSE SINGAPORE, IPC MEXICO, BURSATIL , S&P/ ASX 200, Tadawul All Share, bahrain all share. The co-movements of the stock market returns are analyzed through a principal component analysis (PCA).The results revealed that the KMO index (Kaiser-Mayer-Olkin) is higher during the turbulent period than during the quiet one and that the proportion of variance explained by the first component during the turbulent period reached 35% while during the quiet one it represented only 26,7%.Regarding the component structure, for the turbulent period, three factors are able to replicate the stock markets indexes movements while for the quiet period four factors are required. These findings give more credit to the thesis supporting the linkage between cross correlation and financial contagion.

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