Information Transmission between International Stock Markets and Bucharest Stock Exchange During a Turbulent Period (2007-2009)

This paper investigates the direction of information flow between world stock markets during the recent financial crisis by conducting Granger causality tests in a three variables system. We employ daily rates of return for three representative stock market indices: S&P 500 for the US, BET-C for Romania and the multinational Morgan Stanley Capital International World Index. We are particularly interested in detecting the most influential external factor on the Romanian market's evolution during a turbulent period (July 2007-March 2009). In other words, we are interested in whether the Romanian stock market followed the evolution of the US market or whether the multinational index constitutes a more important explanatory variable for our market. Results confirm that the US stock market was the most influential during the analyzed period and innovations in the United States stock market were subsequently transmitted to other markets. In addition, this relationship was unilateral, as stock movements from other markets were not necessarily reflected in future US stock prices. The findings imply that investors in the Romanian equity market could have obtained some profit using signals from more developed international markets, especially from US