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International stock market leadership and its determinants

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  • Cai, Charlie X.
  • Mobarek, Asma
  • Zhang, Qi

Abstract

We study time-varying price leadership between international stock markets using a Markov switching causality model. We demonstrate variations in the causality pattern over time, with the US being the dominant country in causing other markets. We examine the factors which determine a country’s role in the causal relationship. For country-specific factors, we show that trades openness increases price leadership. We also find that the lead–lag relationship between the stock markets is weaker during crisis periods, confirming the “wake-up call” hypothesis, with markets and investors focusing substantially more on idiosyncratic, country-specific characteristics during the crisis.

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  • Cai, Charlie X. & Mobarek, Asma & Zhang, Qi, 2017. "International stock market leadership and its determinants," Journal of Financial Stability, Elsevier, vol. 33(C), pages 150-162.
    • Handle: RePEc:eee:finsta:v:33:y:2017:i:c:p:150-162
    DOI: 10.1016/j.jfs.2016.10.002
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    More about this item

    Keywords

    Causality; Price leadership; Financial crisis; Causality factors;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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