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Stock Market Co-Movement in the Caribbean

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  • B Harrison
  • W Moore

Abstract

This paper investigates co-movement in five Caribbean stock markets (Barbados, Jamaica and Trinidad and Tobago, The Bahamas and Guyana) using common factor analysis. The common factors are obtained using principal component analysis and therefore account for the maximum portion of the variance present in the stock exchanges investigated. We break our analysis down and test for co-movement in different periods so as to ascertain any changes that have taken place from one period to the next. In particular we examine 10-year, 5-year and 3-year periods. We also specify a vector autoregression model and test for co-movement between the five markets during the sample period through impulse response functions. Both of our tests fail to find any evidence of co-movement between the exchanges over the entire sample period. However, we find evidence of periodic co-movement, particularly between exchanges in Barbados, Jamaica and Trinidad and Tobago.

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Bibliographic Info

Article provided by Economic Issues in its journal Economic Issues.

Volume (Year): 15 (2010)
Issue (Month): 1 (March)
Pages: 1-15

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Handle: RePEc:eis:articl:110harrison

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  1. Tom Engsted & Carsten Tanggaard, 2004. "The Comovement of US and UK Stock Markets," European Financial Management, European Financial Management Association, vol. 10(4), pages 593-607.
  2. Patricia Fraser & Oluwatobi Oyefeso, 2005. "US, UK and European Stock Market Integration," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(1-2), pages 161-181.
  3. Pesaran, M. H. & Shin, Y., 1997. "Generalised Impulse Response Analysis in Linear Multivariate Models," Cambridge Working Papers in Economics 9710, Faculty of Economics, University of Cambridge.
  4. Raj Aggarwal & Brian M. Lucey & Cal Muckley, 2004. "Dynamics of Equity Market Integration in Europe: Evidence of Changes over time and with events," The Institute for International Integration Studies Discussion Paper Series iiisdp019, IIIS.
  5. Dimitris Georgoutsos & George Kouretas, 2001. "Common Stochastic Trends In International Stock Markets: Testing In An Integrated Framework," Working Papers 0104, University of Crete, Department of Economics.
  6. Darrat, Ali F. & Zhong, Maosen, 2005. "Equity market linkage and multinational trade accords: The case of NAFTA," Journal of International Money and Finance, Elsevier, vol. 24(5), pages 793-817, September.
  7. 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.
  8. Bettina Becker & Stephen G. Hall, 2009. "A new look at economic convergence in Europe: a common factor approach," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 14(1), pages 85-97.
  9. Chanwit Phengpis & Vince P. Apilado & Peggy E. Swanson, 2004. "Effects of Economic Convergence on Stock Market Returns in Major EMU Member Countries," Review of Quantitative Finance and Accounting, Springer, vol. 23(3), pages 207-227, November.
  10. John V. Duca, 2001. "How does the stock market affect the economy?," Southwest Economy, Federal Reserve Bank of Dallas, issue Sep, pages 1, 9-12.
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