Previous studies have investigated the comovements of international equity markets by using correlation, cointegration, common factor analysis, and other approaches. In this paper, we investigate the stochastic structure of major euro and non-euro area stock market series from 1994 to 2006, by using cluster analysis techniques for time series. We use an interpolated-periodogram based metric for level and squared returns in order to compute distances between the stock markets. This method captures the stochastic dependence structure of the time series and solves the shortcoming of unequal sample sizes found for different countries. The clusters of countries are formed by the dendrogram and the principal coordinates associated with the sample spectrum for both the series of returns and volatilities. The empirical results suggest that the cross-country groups have become considerably more homogeneous with the introduction of the euro as an electronic currency. For reference, we also explore the pairwise correlations among the series.
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number
6609.
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