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Co-movements in International Equity Markets

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  • Darbar, Salim M
  • Deb, Partha

Abstract

We examine the co-movements of equity returns in four major international markets by characterizing the time-varying cross-country covariances and correlations. Using a generalized positive definite multivariate GARCH model, we find that the Japanese and U.S. stock markets have significant transitory covariance, but zero permanent covariance. The other pairs of markets examined display significant permanent and transitory covariance. We also find that, while conditional correlations between returns are generally small, they change considerably over time. An event analysis suggests that basing diversification strategies on these conditional correlations is potentially beneficial.

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Bibliographic Info

Article provided by Southern Finance Association & Southwestern Finance Association in its journal Journal of Financial Research.

Volume (Year): 20 (1997)
Issue (Month): 3 (Fall)
Pages: 305-22

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Handle: RePEc:bla:jfnres:v:20:y:1997:i:3:p:305-22

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Web page: http://www.southwesternfinance.org/
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Cited by:
  1. Helena Chulia & Francisco Climent & Pilar Soriano & Hipolit Torro, 2009. "Volatility transmission patterns and terrorist attacks," Quantitative Finance, Taylor & Francis Journals, Taylor & Francis Journals, vol. 9(5), pages 607-619.
  2. Sheedy, Elizabeth, 1998. "Correlation in currency markets a risk-adjusted perspective," Journal of International Financial Markets, Institutions and Money, Elsevier, Elsevier, vol. 8(1), pages 59-82, January.
  3. Siv Heng Taing & Andrew C. Worthington, 2002. "Comovements among European equity sectors: Selected evidence from the consumer discretionary, consumer staples, financial, industrial and materials sectors," School of Economics and Finance Discussion Papers and Working Papers Series, School of Economics and Finance, Queensland University of Technology 116, School of Economics and Finance, Queensland University of Technology.
  4. Siv Taing & Andrew Worthington, 2005. "Return relationships among European equity sectors: A comparative analysis across selected sectors in small and large economies," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 371-388, November.
  5. Ansgar Belke & Christian Gokus, 2011. "Volatility Patterns of CDS, Bond and Stock Markets before and during the Financial Crisis: Evidence from Major Financial Institutions," Discussion Papers of DIW Berlin 1107, DIW Berlin, German Institute for Economic Research.
  6. Canarella, Giorgio & Sapra, Sunil K. & Pollard, Stephen K., 2007. "Asymmetry and Spillover Effects in the North American Equity Markets," Economics Discussion Papers 2007-35, Kiel Institute for the World Economy.
  7. Grieb, Terrance & Reyes, Mario G., 2002. "The temporal relationship between large- and small-capitalization stock returns:: Evidence from the UK," Review of Financial Economics, Elsevier, Elsevier, vol. 11(2), pages 109-118.
  8. Jian Yang & Titus Awokuse, 2003. "Asset storability and hedging effectiveness in commodity futures markets," Applied Economics Letters, Taylor & Francis Journals, Taylor & Francis Journals, vol. 10(8), pages 487-491.
  9. Ewing, Bradley T. & Malik, Farooq & Ozfidan, Ozkan, 2002. "Volatility transmission in the oil and natural gas markets," Energy Economics, Elsevier, Elsevier, vol. 24(6), pages 525-538, November.
  10. Swanson, Peggy E., 2003. "The interrelatedness of global equity markets, money markets, and foreign exchange markets," International Review of Financial Analysis, Elsevier, Elsevier, vol. 12(2), pages 135-155.
  11. Panait, Iulian & Slavescu, Ecaterina Oana, 2011. "Volatility and causality study of the daily returns on the Bucharest Stock Exchange during 2007-2011," MPRA Paper 41786, University Library of Munich, Germany.
  12. Smith, Kenneth L. & Swanson, Peggy E., 2008. "The dynamics among G7 government bond and equity markets and the implications for international capital market diversification," Research in International Business and Finance, Elsevier, Elsevier, vol. 22(2), pages 222-245, June.
  13. Smith, Kenneth L., 2001. "Pre- and post-1987 crash frequency domain analysis among Pacific Rim equity markets," Journal of Multinational Financial Management, Elsevier, Elsevier, vol. 11(1), pages 69-87, February.
  14. Chris Higson & Sean Holly & Ivan Petrella, 2009. "The Financial Integration of the European Union: Common and Idiosyncratic Drivers," Working Paper / FINESS, DIW Berlin, German Institute for Economic Research 1.1d, DIW Berlin, German Institute for Economic Research.
  15. Klaassen, F.J.G.M., 1999. "Have Exchange Rates Become More Closely Tied? Evidence from a New Multivariate GARCH Model," Discussion Paper, Tilburg University, Center for Economic Research 1999-10, Tilburg University, Center for Economic Research.
  16. Andrew Worthington & Helen Higgs, 2001. "A multivariate GARCH analysis of equity returns and volatility in Asian equity markets," School of Economics and Finance Discussion Papers and Working Papers Series, School of Economics and Finance, Queensland University of Technology 089, School of Economics and Finance, Queensland University of Technology.
  17. Kai-Li Wang & Mei-Ling Chen, 2007. "The dynamics in the spot, futures, and call options with basis asymmetries: an intraday analysis in a generalized multivariate GARCH-M MSKST framework," Review of Quantitative Finance and Accounting, Springer, Springer, vol. 29(4), pages 371-394, November.
  18. Philip Kostov & Ziping Wu & Seamus McErlean, 2004. "Do Chinese stock markets share common information arrival processes?," Econometrics, EconWPA 0410001, EconWPA.

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