International Research Journal of Finance and Economics ISSN 1450-2887 Issue 98 September, 2012 © EuroJournals Publishing, Inc. 2012 http://www. internationalresearchjournaloffinanceandeconomics.com Developed and Emerging Stock Markets during the Global Financial Crisis Seema Narayan School of Economics, Finance and Marketing RMIT University, Melbourne, Australia E-mail: seema. narayan@rmit. edu. au Silvia Zia Islam School of Economics, Finance and Marketing RMIT University, Melbourne, Australia E-mail: silvia. islam@rmit. edu. au Abstract In this paper, we examine 22 benchmark stock market indices of developed and emerging countries during the period 31 December 1999-26 February 2010. We study stock market behaviour focusing on the persistence of market volatility, the leverage effect, structural breaks or shocks, and market integration and efficiency. The paper finds that most markets in the two groups behaved similarly in the GFC period. In comparison to the pre-GFC period, markets became efficient and many experienced a fall in the persistence of their volatility. The leverage effect, on the other hand, intensified during the GFC. The dates associated with the structural breaks in stock price indices are found to be same for all countries on two occasions - February 2007 and August 2008. This is an indication that market reactions were synchronised. This is unique to the GFC, as our pre-GFC analysis, which also captures the 2002 market downturns, fails to show similar synchronous behaviour. Keywords: Global Financial Crisis (GFC); Stock markets; Efficient capital market hypothesis; Structural shocks, Leverage effects; Persistence of market volatility JEL Classifications Codes: C22, G01, G14, G15 1. Introduction On the GFC and stock markets, there is currently evidence that 11 major European share markets experienced significantly higher volatility levels during the GFC covering the period July 2003 to September 2010 (Milunovich, 2011); for Jordan’s stock returns, volatility is unaffected by the GFC (2008 and 2009) and the positive relationship between risk and return is preserved in the crisis period (Al Rjoum, 2011); 8 developed and 2 emerging stock markets are co-integrated during September 2008 to August 2009 (Assidenou, 2011);there is a dramatically stronger correlation between stock markets of 10 industrialised countries during crisis period from July 2007 to February 2009 and DJ and DAX were not exerting as much influence on the other 8 indices in the same period (Gklezakoa and Mylonakis, 2011); for 17 financial markets, volatility plays a key role in explaining the changing nature of correlations among stock markets over the global financial crisis period from February 2007