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Although assessing the full consequences of the global financial crisis that began in the summer of 2007 will require years, it is possible now to examine how short-term linkages in different financial markets have changed since the onset of the crisis. In particular, this paper asks whether there has been any diminution in the traditional role of U.S. financial markets in leading movements in other financial markets. This paper examines daily movements in three major equity indexes: the U.S. S&P 500, the Japanese Nikkei 225, and the British FTSE 100. It examines how daily changes in one market are correlated with the immediately subsequent changes in the other two and the size of movements in each market after a given change in the other markets before and after the onset of the crisis. The authors find that the three national equity indices examined became more highly correlated after the onset of the crisis. This result is robust with respect to the choice of starting date for the crisis and is consistent with the findings of other studies of other financial crises. More novel is the finding that the size of one market's movements subsequent to movements in other markets also increased. The influence of U.S. markets on market movements elsewhere does not appear to have diminished in the period immediately following the onset of the crisis.

This research was sponsored by Harold Brown, chair of the advisory board of the RAND Center for Global Risk and Security (CGRS), and was conducted within CGRS, part of International Programs at the RAND Corporation.

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