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Robust global stock market interdependencies

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  • Lucey, Brian M.
  • Muckley, Cal

Abstract

In this paper, we examine the scope for in ternational stock portfolio diversification, from the viewpoint of a United States representative investor, in regard to both the Asian and the European stock markets. Our findings indicate that despite correlation style evidence to the contrary, the European stock markets provide a superior long-term diversification opportunity relative to that provided by the Asian stock markets. Hence, a short-term measurement of interdependence appears to be uninformative with respect to the diversification opportunities of investors with longer term investment horizons. In terms of methodology, we adopt common stochastic trend tests, including a common stochastic trend test which accounts for generalised autoregressive conditional heteroskedasticity effects in conjunction with the recursive estimation of these tests to estimate the development of long-term stock market interdependence linkages. Recursively estimated robust correlations between the international stock markets are utilised to reveal the nature of short-term stock market interdependence linkages.

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Bibliographic Info

Article provided by Elsevier in its journal International Review of Financial Analysis.

Volume (Year): 20 (2011)
Issue (Month): 4 (August)
Pages: 215-224

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Handle: RePEc:eee:finana:v:20:y:2011:i:4:p:215-224

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Web page: http://www.elsevier.com/locate/inca/620166

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Keywords: Stock market linkages Portfolio diversification Correlation Cointegration;

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Cited by:
  1. Mohamed El Hedi Arouri & Frédéric Teulon & Christophe Rault, 2013. "Equity Risk Premium and Regional Integration," CESifo Working Paper Series 4158, CESifo Group Munich.
  2. Faten Ben Slimane & Mohamed Mehanaoui & Irfan A. Kazi, 2014. "Interdependency and Spillover during the Financial Crisis of 2007 to 2009 – Evidence from High Frequency Intraday Data," Working Papers 2014-126, Department of Research, Ipag Business School.
  3. Yang, Chunxia & Chen, Yanhua & Niu, Lei & Li, Qian, 2014. "Cointegration analysis and influence rank—A network approach to global stock markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 400(C), pages 168-185.

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