• Stock return comovements
• Banking crisis
• Contagion
• Generalized Dynamic Factor Model
• Financial Globalization

Financial globalization and incresed market integration at the world level has attracted considerable interest during last years. These events generated a large group of reserach contributions, yet the study of the effects of financial globalization during economic crisis period has mostly been focused on the effects of the financial globalization in emerging economies. In contrast to this, our investigation addresses the question of how the ongoing global financial crisis and the process of financial globalization are related in two groups of developed economies like US and Canada and the Eurozone. In particular we examine two key issues:

1. We study the drivers of volatility and comovements among financial industry stock returns.

2. We quantify the importance of the financial globalization in the ongoing banking crisis.

In order to answer to these questions we develop and estimate a dynamic factor model with time-varying conditional factor loadings. This measurement tool is designed to capture changing comovements among time series by allowing for their dependence on common factors to evolve over time.