This article has been reviewed according to Science X's editorial process and policies. Editors have highlighted the following attributes while ensuring the content's credibility: Research shows that crises do more than cause financial market volatility and falling share prices—they lead to markets becoming far more interconnected. Published in the Journal of Risk and Financial Management, the study by Dr.
Domenico Vicinanza of Anglia Ruskin University (ARU) examined the behavior of major stock markets on both sides of the Atlantic during the global financial crisis and the start of the COVID-19 pandemic. Using a statistical technique derived from chaos theory, known as convergent cross-mapping, the study analyzed movements in the Dow Jones Industrial Average, S&P 500, FTSE 100 and DAX before, during and after each crisis. Unlike conventional approaches that focus on correlation—markets A and B tend to move together—the study examined whether the dynamics of one market contained recoverable information about another, an indicator of deeper nonlinear connections between markets.
Studying nonlinear dynamical coupling, where markets become linked through factors such as feedback loops, investor sentiment and policy announcements, shows the extent to which the behavior of one market leaves a detectable footprint in another. In practical terms, this means the behavior of one market becomes increasingly informative about the behavior of others. The research found that market interconnectedness increased sharply during both crises studied, with markets responding more strongly to the same global pressures.
The most striking results emerged during the early months of the COVID-19 pandemic. Every market relationship tested between the Dow Jones, S&P 500, FTSE 100 and DAX suggested that the crisis produced a broad strengthening of links across the system, rather than reflecting temporary movements alone. The study's average coupling measure increased by 16% from the precrisis period to the crisis period.
The research found that the strengthening of these connections happened quickly, with the strongest links between U.S. and European markets appearing within a window of three trading days, and many happening simultaneously. While COVID-19 produced a sharp but relatively short spike in connectivity during the crisis phase, the strong links between markets lasted for longer during the global financial crisis, with coupling continuing and then peaking in the postcrisis phase. The research also showed that these connections were not flowing in a single direction, although the U.S. markets exerted a slightly stronger influence on European markets during the pandemic.
"This study shows that methods derived from chaos theory can provide new insights into the behavior of financial markets. "Convergent cross-mapping complements established tools such as correlation analysis and volatility measures by revealing how markets interact as complex, evolving systems and it highlights that the connections between markets can be just as important as the behavior of individual markets. "If two markets are genuinely connected, the movement of one market may leave a detectable trace in the other.
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