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A spatial analysis of international stock market linkages

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Abstract

We employ spatial econometrics techniques to investigate to what extentcountries’ economic and geographical relations affect their stock market comovements.We propose an econometric model that is particularly suitable for financial data, where common time trends prevail. In general, among the relations that we analyze, bilateral trade and exchange rate stability prove to be best suited to capture return co-variations. An analysis of three regionally dominant countries shows that bilateral trade is the most important relation regarding the transmission of shocks from the US and Japan to other countries, whereas the UK affects mostly its geographical neighbors.

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Bibliographic Info

Paper provided by Knut Wicksell Centre for Financial Studies, Lund University in its series Knut Wicksell Working Paper Series with number 2013/3.

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Length: 37 pages
Date of creation: 03 Feb 2013
Date of revision:
Handle: RePEc:hhs:luwick:2013_003

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Postal: Knut Wicksell Centre for Financial Studies, Lund University School of Economics and Management, P.O. Box 7080, S-220 07 Lund, Sweden
Phone: +46 46-222 32 61
Fax: +46 46-222 34 06
Web page: http://www.lusem.lu.se/kwc
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Keywords: Financial and economic integration; stock market co-movements; spatial econometrics; feedback effects;

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Cited by:
  1. Francisco Blasques & Siem Jan Koopman & Andre Lucas & and Julia Schaumburg, 2014. "Spillover Dynamics for Systemic Risk Measurement using Spatial Financial Time Series Models," Tinbergen Institute Discussion Papers, Tinbergen Institute 14-107/III, Tinbergen Institute.
  2. Matthias Arnold & Sebastian Stahlberg & Dominik Wied, 2013. "Modeling different kinds of spatial dependence in stock returns," Empirical Economics, Springer, Springer, vol. 44(2), pages 761-774, April.
  3. Tam, Pui Sun, 2014. "A spatial–temporal analysis of East Asian equity market linkages," Journal of Comparative Economics, Elsevier, vol. 42(2), pages 304-327.

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