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Country and Industry Convergence of Equity Markets: International Evidence from Club Convergence and Clustering

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Author Info

  • Nicholas Apergis

    ()
    (Department of Banking and Financial Management, University of Piraeus)

  • Christina Christou

    ()
    (Department of Banking and Financial Management, University of Piraeus)

  • Stephen M. Miller

    ()
    (Department of Economics, University of Nevada, Las Vegas)

Abstract

This study employs the panel convergence methodology developed by Phillips and Sul (2007) to explore the convergence dynamics of international equity markets. The analysis considers both country and industry effects. While traditional portfolio management strategies usually follow a top-down procedure, assuming that country-level effects drive financial aggregates, e.g. stock returns, our empirical results suggest that the equity markets of 35 of the 42 counties in our sample do form a unified convergence club. The empirical findings also show more numerous stock-price convergence clubs in certain industries. That is, industry factors play a more important role in explaining the actual divergence in stock prices than does the stock market itself. Conversely, the volatility of stock prices exhibits much more evidence of convergence than stock prices. These findings should assist portfolio managers in the design and implementation of appropriate portfolio management strategies. Regulatory authorities also can benefit in the design of financial regulation.

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File URL: http://web.unlv.edu/projects/RePEc/pdf/1105.pdf
File Function: First version, 2011
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Bibliographic Info

Paper provided by University of Nevada, Las Vegas , Department of Economics in its series Working Papers with number 1105.

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Length: 36 pages
Date of creation: Mar 2011
Date of revision:
Handle: RePEc:nlv:wpaper:1105

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Related research

Keywords: equity markets convergence; industry effects; international equity markets; panel convergence methodology;

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References

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  1. Egert, Balazs & Kocenda, Evzen, 2007. "Interdependence between Eastern and Western European stock markets: Evidence from intraday data," Economic Systems, Elsevier, vol. 31(2), pages 184-203, June.
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Cited by:
  1. Asongu, Simplice A, 2013. "Fighting African Capital Flight: Empirics on Benchmarking Policy Harmonization," MPRA Paper 48469, University Library of Munich, Germany.
  2. Simplice A, Asongu, 2012. "African Development: Beyond Income Convergence," MPRA Paper 36054, University Library of Munich, Germany.
  3. Asongu Simplice, 2012. "Harmonizing IPRs on Software Piracy: Empirics of Trajectories in Africa," Working Papers 12/025, African Governance and Development Institute..
  4. Asongu Simplice, 2013. "A brief future of Time in the monopoly of scientific knowledge," Working Papers 13/001, African Governance and Development Institute..
  5. Simplice A, Asongu, 2012. "African Financial Development Dynamics: Big Time Convergence," MPRA Paper 36053, University Library of Munich, Germany.
  6. Asongu Simplice, 2012. "African Stock Market Performance Dynamics: A Multidimensional Convergence Assessment," Working Papers 12/004, African Governance and Development Institute..

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