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Stock market integration and the speed of information transmission

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  • Alexandr Cerny

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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Bibliographic Info

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

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Cited by:
  1. Dragan Tevdovski, 2014. "Extreme negative coexceedances in South Eastern European stock markets," CREATES Research Papers 2014-18, School of Economics and Management, University of Aarhus.
  2. Horvath, Roman & Petrovski, Dragan, 2013. "International stock market integration: Central and South Eastern Europe compared," Economic Systems, Elsevier, vol. 37(1), pages 81-91.
  3. repec:wdi:papers:2011-1028 is not listed on IDEAS
  4. 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.
  5. Horobet, Alexandra & Ilie, Livia, 2007. "On the dynamic link between stock prices and exchange rates: evidence from Romania," MPRA Paper 6429, University Library of Munich, Germany.
  6. Horobet, Alexandra & Lupu, Radu, 2009. "Are Capital Markets Integrated? A Test of Information Transmission within the European Union," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 6(2), pages 64-80, June.

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