Advanced Search
MyIDEAS: Login to save this article or follow this journal

Measuring time-varying financial market integration: An unobserved components approach

Contents:

Author Info

  • Berger, Tino
  • Pozzi, Lorenzo

Abstract

We measure the time-varying degree of world stock market integration of five developed countries (Germany, France, UK, US, and Japan) over the period 1970:1–2011:10. Time-varying financial market integration of each country is measured through the conditional variances of the country-specific and common international risk premiums in equity excess returns. The country-specific and common risk premiums and their conditional variances are estimated from a latent factor decomposition through the use of state space methods that allow for GARCH errors. Our empirical results suggest that stock market integration has increased over the period 1970:1–2011:10 in all countries but Japan. And while there is a structural increase in stock market integration in four out of five countries, all countries also exhibit several shorter periods of disintegration (reversals), i.e. periods in which country-specific shocks play a more dominant role. Hence, stock market integration is measured as a dynamic process that is fluctuating in the short run while gradually increasing in the long run.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.sciencedirect.com/science/article/pii/S0378426612002919
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 37 (2013)
Issue (Month): 2 ()
Pages: 463-473

as in new window
Handle: RePEc:eee:jbfina:v:37:y:2013:i:2:p:463-473

Contact details of provider:
Web page: http://www.elsevier.com/locate/jbf

Related research

Keywords: Financial markets; Integration; Factor model; Unobserved component; GARCH;

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Fratzscher, Marcel, 2001. "Financial market integration in Europe: on the effects of EMU on stock markets," Working Paper Series 0048, European Central Bank.
  2. Bekaert, Geert & Hodrick, Robert J. & Zhang, Xiaoyan, 2008. "International stock return comovements," Working Paper Series 0931, European Central Bank.
  3. King, Mervyn & Sentana, Enrique & Wadhwani, Sushil, 1994. "Volatility and Links between National Stock Markets," Econometrica, Econometric Society, vol. 62(4), pages 901-33, July.
  4. Kim, Suk Joong & Moshirian, Fariborz & Wu, Eliza, 2005. "Dynamic stock market integration driven by the European Monetary Union: An empirical analysis," Journal of Banking & Finance, Elsevier, vol. 29(10), pages 2475-2502, October.
  5. Colm Kearney & Valerio Poti, 2005. "Correlation Dynamics in European Equity Markets," Finance 0507008, EconWPA.
  6. Charlotte Christiansen, 2007. "Decomposing European Bond and Equity Volatility," CREATES Research Papers 2007-06, School of Economics and Management, University of Aarhus.
  7. Longin, Francois & Solnik, Bruno, 1995. "Is the correlation in international equity returns constant: 1960-1990?," Journal of International Money and Finance, Elsevier, vol. 14(1), pages 3-26, February.
  8. Geert Bekaert & Campbell R. Harvey, 1994. "Time-Varying World Market Integration," NBER Working Papers 4843, National Bureau of Economic Research, Inc.
  9. William N. Goetzmann & Lingfeng Li & K. Geert Rouwenhorst, 2001. "Long-Term Global Market Correlations," NBER Working Papers 8612, National Bureau of Economic Research, Inc.
  10. Sheppard, Kevin & Cappiello, Lorenzo & Engle, Robert F., 2003. "Asymmetric dynamics in the correlations of global equity and bond returns," Working Paper Series 0204, European Central Bank.
  11. Abad, Pilar & Chuliá, Helena & Gómez-Puig, Marta, 2010. "EMU and European government bond market integration," Journal of Banking & Finance, Elsevier, vol. 34(12), pages 2851-2860, December.
  12. Kaltenhaeuser, Bernd, 2003. "Country and sector-specific spillover effects in the euro area, the United States and Japan," Working Paper Series 0286, European Central Bank.
  13. Harvey, Andrew & Ruiz, Esther & Sentana, Enrique, 1992. "Unobserved component time series models with Arch disturbances," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 129-157.
  14. David Barr & Richard Priestley, . "Expected returns, risk and the integration of international bond markets," CERF Discussion Paper Series 97-04, Economics and Finance Section, School of Social Sciences, Brunel University.
  15. Chang-Jin Kim & Charles R. Nelson, 1999. "State-Space Models with Regime Switching: Classical and Gibbs-Sampling Approaches with Applications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262112388, December.
  16. Kpate Adjaouté, 2004. "Equity Returns and Integration: Is Europe Changing?," Oxford Review of Economic Policy, Oxford University Press, vol. 20(4), pages 555-570, Winter.
  17. Ammer, John & Mei, Jianping, 1996. " Measuring International Economic Linkages with Stock Market Data," Journal of Finance, American Finance Association, vol. 51(5), pages 1743-63, December.
  18. Roll, R., 1989. "Price Volatility, International Market Links, And Their Implications For Regulatory Policies," Papers t10, Columbia - Center for Futures Markets.
  19. Ramchand, Latha & Susmel, Raul, 1998. "Volatility and cross correlation across major stock markets," Journal of Empirical Finance, Elsevier, vol. 5(4), pages 397-416, October.
  20. Pozzi, Lorenzo & Wolswijk, Guido, 2012. "The time-varying integration of euro area government bond markets," European Economic Review, Elsevier, vol. 56(1), pages 36-53.
  21. Ball, Clifford A. & Torous, Walter N., 2000. "Stochastic correlation across international stock markets," Journal of Empirical Finance, Elsevier, vol. 7(3-4), pages 373-388, November.
  22. Carrieri, Francesca & Errunza, Vihang & Hogan, Ked, 2007. "Characterizing World Market Integration through Time," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 42(04), pages 915-940, December.
  23. Robert-Paul Berben & W. Jos Jansen, 2005. "Bond Market and Stock Market Integration in Europe," DNB Working Papers 060, Netherlands Central Bank, Research Department.
  24. R-P. Berben & W.J. Jansen, 2001. "Comovement in International Equity Markets: a Sectoral View," MEB Series (discontinued) 2001-11, Netherlands Central Bank, Monetary and Economic Policy Department.
  25. Hardouvelis, Gikas A & Malliaropoulos, Dimitrios & Priestley, Richard, 1999. "EMU and European Stock Market Integration," CEPR Discussion Papers 2124, C.E.P.R. Discussion Papers.
  26. Ball, Clifford A. & Torous, Walter N., 2000. "Stochastic Correlation Across International Stock Markets," University of California at Los Angeles, Anderson Graduate School of Management qt6vn9q79w, Anderson Graduate School of Management, UCLA.
  27. Durbin, James & Koopman, Siem Jan, 2001. "Time Series Analysis by State Space Methods," OUP Catalogue, Oxford University Press, number 9780198523543, September.
  28. Harvey, Campbell R, 1991. " The World Price of Covariance Risk," Journal of Finance, American Finance Association, vol. 46(1), pages 111-57, March.
  29. Bali, Turan G. & Cakici, Nusret, 2010. "World market risk, country-specific risk and expected returns in international stock markets," Journal of Banking & Finance, Elsevier, vol. 34(6), pages 1152-1165, June.
  30. Robin Brooks & Marco Del Negro, 2002. "The Rise in Comovement Across National Stock Markets," IMF Working Papers 02/147, International Monetary Fund.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Khaled GUESMI & Ilyes ABID & Olfa KAABIA, 2014. "Stock Market Integration and Risk Premium: Empirical Evidence for Emerging Economies of South Asia," Working Papers 2014-444, Department of Research, Ipag Business School.
  2. Khaled Guesmi & Frederic Teulon & Ahmed Taneem Muzaffar, 2014. "The Evolution of Risk Premium as a Measure for Intra-regional Equity Market Integration," Working Papers 2014-365, Department of Research, Ipag Business School.
  3. Khaled Guesmi & Frédéric Teulon, 2014. "Equity Market Integration and Currency Risk: Empirical Evidence for Indonesia," Working Papers 2014-096, Department of Research, Ipag Business School.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eee:jbfina:v:37:y:2013:i:2:p:463-473. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.