Identifying Asymmetric Comovements of International Stock Market Returns
AbstractBased on a new approach for measuring the comovements between stock market returns, we provide a nonparametric test for asymmetric comovements in the sense that stock market downturns will lead to stronger comovements than market upturns. The test is used to detect whether asymmetric comovements exist in international stock markets. We find the following empirical facts. First, asymmetric comovements exist between the United States (U.S.) stock market and the stock markets for Canada, France, Germany, and the United Kingdom (U.K.), but the data are unable to reject the null hypothesis of the symmetric comovements between the U.S. and Japanese stock markets. Second, either a larger negative drop or a positive increase in stock prices leads to stronger comovements of stock market returns, indicating that comovements in the data are different from comovements implied by a bivariate symmetric distribution, which implies that comovements tend to zero as the market returns become more positive or more negative.
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Bibliographic InfoPaper provided by Bank of Canada in its series Working Papers with number 10-21.
Length: 35 pages
Date of creation: 2010
Date of revision:
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Financial stability; Financial system regulation and policies; International topics; Econometric and statistical methods;
Find related papers by JEL classification:
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
- G19 - Financial Economics - - General Financial Markets - - - Other
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
- C49 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Other
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