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Comovements in International Stock Markets

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Author Info
Andrea Beltratti ()
Claudio Morana ()
Abstract

In the paper monthly realized moments for stock market returns for the US, the UK, Germany and Japan are employed to assess the linkages holding across moments and markets over the period 1973-2004. In the light of the theoretical framework proposed in the paper, the results point to a progressive integration of the four stock markets, leading to increasing comovements in prices, returns, volatility and correlation. Evidence of a positive and non spurious linkage between volatility and correlation, and a trend increase in correlation coefficients over time, is also found. All the above mentioned linkages seem to be particularly strong for the US and Europe, while the persistent stagnation of the economy and the weak fun-damentals over the 1990s may have been the cause of the more idiosyncratic behavior of the Japanese stock market

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Publisher Info
Paper provided by ICER - International Centre for Economic Research in its series ICER Working Papers with number 3-2006.

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Length: 29 pages
Date of creation: Jul 2006
Date of revision:
Handle: RePEc:icr:wpicer:3-2006

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Related research
Keywords: realized volatility; realized correlation; stock markets; financial integration; economic integration.;

Find related papers by JEL classification:
G1 - Financial Economics - - General Financial Markets
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions

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  1. King, Mervyn & Sentana, Enrique & Wadhwani, Sushil, 1994. "Volatility and Links between National Stock Markets," Econometrica, Econometric Society, vol. 62(4), pages 901-33, July. [Downloadable!] (restricted)
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  2. Andersen T. G & Bollerslev T. & Diebold F. X & Labys P., 2001. "The Distribution of Realized Exchange Rate Volatility," Journal of the American Statistical Association, American Statistical Association, vol. 96, pages 42-55, March. [Downloadable!] (restricted)
  3. Merton, Robert C, 1973. "An Intertemporal Capital Asset Pricing Model," Econometrica, Econometric Society, vol. 41(5), pages 867-87, September. [Downloadable!] (restricted)
  4. Clifford Ball & Walter Torous, 2000. "Stochastic Correlation Across International Stock Markets," University of California at Los Angeles, Anderson Graduate School of Management 1063, Anderson Graduate School of Management, UCLA. [Downloadable!]
  5. Andrew Ang & Geert Bekaert, 1999. "International Asset Allocation with Time-Varying Correlations," NBER Working Papers 7056, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Ramchand, Latha & Susmel, Raul, 1998. "Volatility and cross correlation across major stock markets," Journal of Empirical Finance, Elsevier, vol. 5(4), pages 397-416, October. [Downloadable!] (restricted)
  7. Morana, Claudio & Beltratti, Andrea, 2002. "The effects of the introduction of the euro on the volatility of European stock markets," Journal of Banking & Finance, Elsevier, vol. 26(10), pages 2047-2064, October. [Downloadable!] (restricted)
  8. Ole E. Barndorff-Nielsen & Shephard, 2002. "Econometric analysis of realized volatility and its use in estimating stochastic volatility models," Journal Of The Royal Statistical Society Series B, Royal Statistical Society, vol. 64(2), pages 253-280. [Downloadable!] (restricted)
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  9. Engle, Robert F & Susmel, Raul, 1993. "Common Volatility in International Equity Markets," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(2), pages 167-76, April.
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  10. Brooks, Robin & Del Negro, Marco, 2004. "The rise in comovement across national stock markets: market integration or IT bubble?," Journal of Empirical Finance, Elsevier, vol. 11(5), pages 659-680, December. [Downloadable!] (restricted)
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  11. Jushan Bai, 2003. "Inferential Theory for Factor Models of Large Dimensions," Econometrica, Econometric Society, vol. 71(1), pages 135-171, January. [Downloadable!] (restricted)
  12. Ball, Clifford A. & Torous, Walter N., 2000. "Stochastic correlation across international stock markets," Journal of Empirical Finance, Elsevier, vol. 7(3-4), pages 373-388, November. [Downloadable!] (restricted)
  13. LONGIN, François & SOLNIK, Bruno, 2000. "Extreme correlation of international equity markets," Les Cahiers de Recherche 705, HEC Paris. [Downloadable!]
  14. Longin, François & Solnik, Bruno H, 2000. "Extreme Correlation of International Equity Markets," CEPR Discussion Papers 2538, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  15. Groenen, Patrick J. F. & Franses, Philip Hans, 2000. "Visualizing time-varying correlations across stock markets," Journal of Empirical Finance, Elsevier, vol. 7(2), pages 155-172, August. [Downloadable!] (restricted)
  16. Longin, Francois & Solnik, Bruno, 1995. "Is the correlation in international equity returns constant: 1960-1990?," Journal of International Money and Finance, Elsevier, vol. 14(1), pages 3-26, February. [Downloadable!] (restricted)
  17. Bai, Jushan, 2004. "Estimating cross-section common stochastic trends in nonstationary panel data," Journal of Econometrics, Elsevier, vol. 122(1), pages 137-183, September. [Downloadable!] (restricted)
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Cited by:
(explanations, 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. Fabio C. Bagliano & Claudio Morana, 2006. "International Macroeconomic Dynamics: a Factor Vector Autoregressive Approach," ICER Working Papers 41-2006, ICER - International Centre for Economic Research. [Downloadable!]
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