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Linkages between the center and periphery stock prices: Evidence from the vector ARFIMA model

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  • Olgun, Hasan
  • Ozdemir, Zeynel Abidin

Abstract

This paper provides evidence on the effects of US equity markets on those of selected emerging markets, using the vector fractionally integrated autoregressive moving-average (VARFIMA) model. This model has not so far been employed in examining the interdependence among the equity markets of the world countries. The paper employs four-variate VARFIMA model which allows us to conduct the empirical analysis without transforming the raw data and captures the fractal dynamics. The findings show that while the stock price series of some markets are non-stationary, but mean-reverting, those of some others are non-stationary and non-mean reverting. The more significant finding is that the S&P500 has permanent effects on the stock prices of the emerging markets included in the sample.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 25 (2008)
Issue (Month): 3 (May)
Pages: 512-519

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Handle: RePEc:eee:ecmode:v:25:y:2008:i:3:p:512-519

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Web page: http://www.elsevier.com/locate/inca/30411

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References

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  1. Hakan Berument & Onur Ince, 2005. "Effect of S&P500’s Return on Emerging Markets : Turkish Experience," Departmental Working Papers 0508, Bilkent University, Department of Economics.
  2. Chung, Ching-Fan, 2001. "Calculating and analyzing impulse responses for the vector ARFIMA model," Economics Letters, Elsevier, vol. 71(1), pages 17-25, April.
  3. Cheung, Yin-Wong & Lai, Kon S., 2001. "Long memory and nonlinear mean reversion in Japanese yen-based real exchange rates," Journal of International Money and Finance, Elsevier, vol. 20(1), pages 115-132, February.
  4. Lothian, James R., 1998. "Some new stylized facts of floating exchange rates," Journal of International Money and Finance, Elsevier, vol. 17(1), pages 29-39, February.
  5. Hakan Berument & Nergiz Dinçer & Hasan Olgun, 2006. "The Center and Periphery Relations In International Stock Markets," Departmental Working Papers 0604, Bilkent University, Department of Economics.
  6. Cha, Baekin & Oh, Sekyung, 2000. "The relationship between developed equity markets and the Pacific Basin's emerging equity markets," International Review of Economics & Finance, Elsevier, vol. 9(4), pages 299-322, October.
  7. Gilmore, Claire G. & McManus, Ginette M., 2002. "International portfolio diversification: US and Central European equity markets," Emerging Markets Review, Elsevier, vol. 3(1), pages 69-83, March.
  8. Fama, Eugene F, 1991. " Efficient Capital Markets: II," Journal of Finance, American Finance Association, vol. 46(5), pages 1575-617, December.
  9. Hosking, Jonathan R. M., 1996. "Asymptotic distributions of the sample mean, autocovariances, and autocorrelations of long-memory time series," Journal of Econometrics, Elsevier, vol. 73(1), pages 261-284, July.
  10. Kasa, Kenneth, 1992. "Common stochastic trends in international stock markets," Journal of Monetary Economics, Elsevier, vol. 29(1), pages 95-124, February.
  11. Wu, Chunchi & Su, Youg-Chern, 1998. "Dynamic relations among international stock markets," International Review of Economics & Finance, Elsevier, vol. 7(1), pages 63-84.
  12. Baillie, Richard T., 1996. "Long memory processes and fractional integration in econometrics," Journal of Econometrics, Elsevier, vol. 73(1), pages 5-59, July.
  13. Ozdemir, Zeynel Abidin & Cakan, Esin, 2007. "Non-linear dynamic linkages in the international stock markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 377(1), pages 173-180.
  14. Ayadi, O. Felix & Dufrene, Uric B. & Chatterjee, Amitava, 1998. "Investment implications of the korean financial market reform," International Review of Financial Analysis, Elsevier, vol. 7(1), pages 83-94.
  15. Arshanapalli, Bala & Doukas, John, 1993. "International stock market linkages: Evidence from the pre- and post-October 1987 period," Journal of Banking & Finance, Elsevier, vol. 17(1), pages 193-208, February.
  16. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
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Cited by:
  1. Barrera, Carlos R., 2010. "Redes neuronales para predecir el tipo de cambio diario," Working Papers 2010-001, Banco Central de Reserva del Perú.
  2. Ozdemir, Zeynel Abidin, 2009. "Linkages between international stock markets: A multivariate long-memory approach," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 388(12), pages 2461-2468.

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