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

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  • Nicholas Apergis

    (University of Piraeus)

  • Christina Christou

    (University of Piraeus)

  • Stephen M. Miller

    (University of Connecticut and 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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Bibliographic Info

Paper provided by University of Connecticut, Department of Economics in its series Working papers with number 2010-33.

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Date of creation: Dec 2010
Date of revision: Jul 2012
Publication status: Forthcoming in North American Journal of Finance and Economics
Handle: RePEc:uct:uconnp:2010-33

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

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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. Simplice A. Asongu, 2013. "African Stock Market Performance Dynamics: A Multidimensional Convergence Assessment," Journal of African Business, Taylor & Francis Journals, vol. 14(3), pages 186-201, December.
  2. Simplice A, Asongu, 2012. "Harmonizing IPRs on Software Piracy: Empirics of Trajectories in Africa," MPRA Paper 42466, University Library of Munich, Germany.
  3. Simplice A, Asongu, 2012. "African Financial Development Dynamics: Big Time Convergence," MPRA Paper 36053, University Library of Munich, Germany.
  4. Asongu Simplice, 2013. "Fighting African Capital Flight: Empirics on Benchmarking Policy Harmonization," Working Papers 13/006, African Governance and Development Institute..
  5. Asongu, Simplice A, 2013. "A brief future of Time in the monopoly of scientific knowledge," MPRA Paper 46959, University Library of Munich, Germany.
  6. Simplice A, Asongu, 2012. "African Development: Beyond Income Convergence," MPRA Paper 36054, University Library of Munich, Germany.

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