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Stock market integration and the speed of information transmission

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Author Info
Alexandr Cerny

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Abstract

Using a unique dataset covering 8 months of high frequency data on the indices from markets in the U.S., London, Frankfurt, Paris, Warsaw, and Prague, I investigate the issue of stock market integration from a novel perspective. Cointegration and Granger causality tests with data of different frequencies (from 5 minutes to 1 day) are performed. The aim is to describe the time structure in which markets react to the information revealed in prices on other markets. Particularly, I want to detect the speed of information transmission between the differentmarkets. The results suggest that markets react very quickly to the information revealed in the prices on other markets. In all cases the reaction occurs as soon as within 1 hour. The U.S. markets seem to be an important source of information for the markets in London and Frankfurt, which react within 30 minutes, with the first reaction occurring already within 5 minutes. Information transmission between the market in London and any of the two continental markets in Paris or Frankfurt appears to be relatively unimportant compared to the information transmission between the two continental markets. The stock market in Paris seems to react to the information revealed at the stock market in Frankfurt with a delay of 40 minutes to 1 hour. Similarly, the two relatively small Eastern European markets in Warsaw and Prague are found to react to the information revealed in the stock market prices in Frankfurt. The reaction of the market in Prague seems to be faster, occurring within 30 minutes, while reaction speed of the market in Warsaw is around 1 hour.

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Paper provided by The Center for Economic Research and Graduate Education - Economic Institute, Prague in its series CERGE-EI Working Papers with number wp242.

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Date of creation: Nov 2004
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Handle: RePEc:cer:papers:wp242

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Related research
Keywords: Stock market integration; Market comovement; High-frequency data; Speed of information transmission; Cointegration; Granger causality.;

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Find related papers by JEL classification:
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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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.:
  1. Balazs Egert & Evzen Kocenda, 2005. "Contagion Across and Integration of Central and Eastern European Stock Markets: Evidence from Intraday Data," William Davidson Institute Working Papers Series wp798, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
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  3. Jon Wongswan, 2003. "Transmission of information across international equity markets," International Finance Discussion Papers 759, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  4. John Y. Campbell & Pierre Perron, 1991. "Pitfalls and Opportunities: What Macroeconomists Should Know About Unit Roots," NBER Chapters, in: NBER Macroeconomics Annual 1991, Volume 6, pages 141-220 National Bureau of Economic Research, Inc. [Downloadable!]
    Other versions:
  5. Cheung, Yin-Wong & Lai, Kon S, 1995. "Lag Order and Critical Values of the Augmented Dickey-Fuller Test," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(3), pages 277-80, July.
  6. Chelley-Steeley, Patricia L & Steeley, James M & Pentecost, Eric J, 1998. "Exchange Controls and European Stock Market Integration," Applied Economics, Taylor and Francis Journals, vol. 30(2), pages 263-67, February. [Downloadable!] (restricted)
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  9. Ray Yeu-Tien Chou & Victor Ng & Lynn K. Pi, 1994. "Cointegration of International Stock Market Indices," IMF Working Papers 94/94, International Monetary Fund.
  10. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Clara Vega, 2003. "Real-Time Price Discovery in Stock, Bond and Foreign Exchange Markets," PIER Working Paper Archive 04-028, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 28 Jun 2004. [Downloadable!]
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  11. Seabra, Fernando, 2001. "A Cointegration Analysis between Mercosur and International Stock Markets," Applied Economics Letters, Taylor and Francis Journals, vol. 8(7), pages 475-78, July. [Downloadable!] (restricted)
  12. Michael Ehrmann & Marcel Fratzscher, 2002. "Interdependence between the euro area and the US: what role for EMU?," Working Paper Series 200, European Central Bank. [Downloadable!]
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Cited by:
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  1. Mukherjee, Dr. Kedar nath & Mishra, Dr. R. K., 2008. "Stock Market Integration and Volatility Spillover:India and its Major Asian Counterparts," MPRA Paper 12788, University Library of Munich, Germany. [Downloadable!]
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