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Diversification benefits in the smaller European stock markets

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  • Raphael Markellos
  • Costas Siriopoulos

Abstract

This paper examines the diversification benefits available to U.S. and Japanese investors over the period 1974-94 in seven of the smaller European stock markets (SESMs): Austria, Belgium, Greece, Holland, Ireland, Italy, and Spain. With reference to a simplified International CAPM that accommodates both contemporaneous and delayed information flows, we employ correlation, principal components, and cointegration analysis in studying monthly observations from national basket indices. The empirical evidence is conclusive in showing that the SESMs have behaved differently, at least since the October 1987 crash, with stronger contemporaneous interdependencies and integration between them and with the U.S. market. Cointegration analysis found no significant common trend shared between the SESMs and the U.S. and Japanese markets. We conclude that despite the increasing international integration there still exist opportunities for diversification investment in the smaller and less studied European stock markets. Copyright International Atlantic Economic Society 1997

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  • Raphael Markellos & Costas Siriopoulos, 1997. "Diversification benefits in the smaller European stock markets," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 3(2), pages 142-153, May.
    • Handle: RePEc:kap:iaecre:v:3:y:1997:i:2:p:142-153:10.1007/bf02294935
    DOI: 10.1007/BF02294935
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    Cited by:

    1. Raphael Markellos, 1999. "Investment strategy evaluation with cointegration," Applied Economics Letters, Taylor & Francis Journals, vol. 6(3), pages 177-179.
    2. Saif Siddiqui, 2009. "Stock Markets Integration: Examining Linkages between Selected World Markets," Vision, , vol. 13(1), pages 19-30, January.
    3. José Carlos Vides & Antonio A. Golpe & Jesús Iglesias, 2018. "How did the Sovereign debt crisis affect the Euro financial integration? A fractional cointegration approach," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 45(4), pages 685-706, November.
    4. Anil Sharma & Neha Seth, 2012. "Literature review of stock market integration: a global perspective," Qualitative Research in Financial Markets, Emerald Group Publishing Limited, vol. 4(1), pages 84-122, April.

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