Long-Term Trends and Short-Run Dynamics in International Stock Markets
AbstractThe objective of the present study is to examine the behaviour and interaction of international stock markets. The validity of an earnings based valuation model is assessed using data from seventeen developed countries around the world over the last sixteen years. The estimation process employed involves a two–step Engel–Granger procedure where cointegrating relationships between market indices and their fundamentals are analysed. Cointegration appears mainly in large markets, while the presence of an error correction representation implies the existence of the reversion force towards the fair value obtained from the cointegrating regression. Further, the error correction model, enriched with other variables identified in previous research, seems to capture the short–run dynamics quite well. The coefficients of the variables in both the cointegrating regression and the error correction representation have the correct signs and are consistent in size. Granger causality tests do not particularly support the hypothesis that smaller markets are being influenced by external factors, since causality seems to run both from large to small markets and vice versa.
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Bibliographic InfoArticle provided by European Research Studies Journal in its journal European Research Studies Journal.
Volume (Year): IV (2001)
Issue (Month): 3-4 (July - December)
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Web page: http://www.ersj.eu/
International markets; Market indices; Cointegration; Error correction model; Short–run dynamics; Causality.;
Find related papers by JEL classification:
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
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