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Financial Integration and Market Efficiency: Some International Evidence from Cointegration Tests

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  • Ky-Hyang Yuhn
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    Abstract

    This study investigates whether the globalization of financial markets enhances the efficiency of national stock markets. To this end, we have developed a dynamic representation of cointegration which is consistent with hypothesis that stock prices reflect the efficient discounting of new information on market fundamentals and testes for market efficiency in five industrialized markets (the United States, Canada, Japan, the United Kingdom, and Germany) over the last two decades. Our empirical analysis indicates that the U.S. and Canadian stock markets obey the long-run equilibrium path implied by our dynamic cointegration model, but the Japanese, British, and German markets do not exhibit such characteristics. Thus, it can be claimed that the stock markets of the United States and Canada are informationally efficient, whereas those of Japan, the United Kingdom, and Germany are not. [G15, G14]

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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal International Economic Journal.

    Volume (Year): 11 (1997)
    Issue (Month): 2 ()
    Pages: 103-116

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    Handle: RePEc:taf:intecj:v:11:y:1997:i:2:p:103-116

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    Cited by:
    1. C. Worthington, Andrew & Higgs, Helen, 2010. "Assessing Financial Integration in the European Union Equity Markets: Panel Unit Root and Multivariate Cointegration and Causality Evidence," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 25, pages 457-479.
    2. Guttler, Caio & Meurer, Roberto & Da Silva, Sergio, 2006. "Informational inefficiency of the Brazilian stockmarket," MPRA Paper 1980, University Library of Munich, Germany.
    3. Sergio Da Silva & Roberto Meurer & Caio Guttler, 2008. "Is the Brazilian stockmarket efficient?," Economics Bulletin, AccessEcon, vol. 7(1), pages 1-16.
    4. Andrew Worthington & Helen Higgs, 2001. "A multivariate GARCH analysis of equity returns and volatility in Asian equity markets," School of Economics and Finance Discussion Papers and Working Papers Series 089, School of Economics and Finance, Queensland University of Technology.
    5. repec:ebl:ecbull:v:7:y:2008:i:1:p:1-16 is not listed on IDEAS
    6. Laopodis, Nikiforos T., 2004. "Financial market liberalization and stock market efficiency: Evidence from the Athens Stock Exchange," Global Finance Journal, Elsevier, vol. 15(2), pages 103-123, August.
    7. Hon, Mark T. & Strauss, Jack K. & Yong, Soo-Keong, 2007. "Deconstructing the Nasdaq bubble: A look at contagion across international stock markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 17(3), pages 213-230, July.
    8. Siv Taing & Andrew Worthington, 2005. "Return relationships among European equity sectors: A comparative analysis across selected sectors in small and large economies," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 371-388, November.
    9. Siv Heng Taing & Andrew C. Worthington, 2002. "Comovements among European equity sectors: Selected evidence from the consumer discretionary, consumer staples, financial, industrial and materials sectors," School of Economics and Finance Discussion Papers and Working Papers Series 116, School of Economics and Finance, Queensland University of Technology.
    10. Andrew Worthington & Helen Higgs, 2004. "Transmission of equity returns and volatility in Asian developed and emerging markets: a multivariate GARCH analysis," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 9(1), pages 71-80.
    11. M. Kabir Hassan & Geoffrey M. Ngene & Jung Suk-Yu, 2011. "Credit Default Swaps and Sovereign Debt Markets," NFI Working Papers 2011-WP-03, Indiana State University, Scott College of Business, Networks Financial Institute.

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