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Common Stochastic Trends in Emerging Equity Markets

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  • Garrett, Ian
  • Spyrou, Spyros

Abstract

Evidence suggests that stock markets in industrialized economies are increasingly integrated with the presence of common trends amongst national stock market indices. This implies that in the long run there is little gain from diversifying portfolios internationally. We investigate the existence of common trends in the increasingly important emerging equity markets of the Latin American and Asia-Pacific regions. While we find evidence of common trends, we argue that this in itself does not rule out long-run benefits to diversification. Examination of the composition of the common trends reveals that some countries do not enter that region's common trend and returns in some countries do not react to movements in the common trend, a result that generalizes to the inclusion of both the USA and the UK. Thus, even though common trends are detected, their impact is very limited and therefore emerging equity markets offer benefits in terms of diversification, even in the long run. Copyright 1999 by Blackwell Publishers Ltd and The Victoria University of Manchester

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Bibliographic Info

Article provided by University of Manchester in its journal Manchester School.

Volume (Year): 67 (1999)
Issue (Month): 6 (December)
Pages: 649-60

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Handle: RePEc:bla:manchs:v:67:y:1999:i:6:p:649-60

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Cited by:
  1. Alenka Kavkler & Mejra Festić, 2011. "Modelling Stock Exchange Index Returns in Different GDP Growth Regimes," Prague Economic Papers, University of Economics, Prague, vol. 2011(1), pages 3-22.
  2. William Miles, 2005. "Do frontier equity markets exhibit common trends and still provide diversification opportunities?," International Economic Journal, Taylor & Francis Journals, vol. 19(3), pages 473-482.
  3. Hyde, Stuart J & Bredin, Don P & Nguyen, Nghia, 2007. "Correlation dynamics between Asia-Pacific, EU and US stock returns," MPRA Paper 9681, University Library of Munich, Germany.
  4. Eleni Constantinou & Avo Kazandjian & Georgios P. Kouretas & Vera Tahmazian, 2008. "Common Stochastic Trends Among The Cyprus Stock Exchange And The Ase, Lse And Nyse," Bulletin of Economic Research, Wiley Blackwell, vol. 60(4), pages 327-349, October.
  5. Nistor, Costel & Dumitriu, Ramona & Stefanescu, Razvan, 2012. "Impact of the global crisis on the linkages between CAC 40 and indexes from CEE countries," MPRA Paper 42511, University Library of Munich, Germany, revised 18 Sep 2012.
  6. Diamandis, Panayiotis F., 2009. "International stock market linkages: Evidence from Latin America," Global Finance Journal, Elsevier, vol. 20(1), pages 13-30.
  7. Roland Füss & Dieter Kaiser, 2007. "The tactical and strategic value of hedge fund strategies: a cointegration approach," Financial Markets and Portfolio Management, Springer, vol. 21(4), pages 425-444, December.

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