Economic Integration and the Co-movement of Stock Returns
AbstractIn this paper we analyze the determinants of co-movements in stock returns among 40 developed and emerging markets, from the 1970s to the 1990s. We provide empirical estimates of the impact of bilateral indicators of economic integration such as bilateral trade intensity, the dissimilarity of export structures, the asymmetry of output growth and bilateral real exchange rate volatility. We find that each indicator has the expected effect on the correlation of stock returns: trade intensity increases the correlation of stock returns, while real exchange rate volatility, the asymmetry of output growth and the degree of export dissimilarity decrease it. We also find that countries with more developed and more analogous institutions - in terms of either rule of law or civil liberties - display a higher correlation of stock returns.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6519.
Date of creation: Oct 2007
Date of revision:
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Other versions of this item:
- Tavares, José, 2009. "Economic integration and the comovement of stock returns," Economics Letters, Elsevier, vol. 103(2), pages 65-67, May.
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- F15 - International Economics - - Trade - - - Economic Integration
- F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-10-20 (All new papers)
- NEP-IFN-2007-10-20 (International Finance)
- NEP-MAC-2007-10-20 (Macroeconomics)
- NEP-RMG-2007-10-20 (Risk Management)
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