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Covariance Stationarity of International Equity Markets Returns: Recent Evidence


  • Wahab, Mahmoud
  • Lashgari, Malek


Intertemporal stationarity tests of the variance-covariance matrix of monthly returns on seven international equity indices are conducted over the most recent period. Pairwise covariances are then decomposed into their component statistics for further examination of the source(s) of stationarity or nonstationarity. Historical analysis reveals that pairwise covariances were invariably highly nonstationary over forecast intervals that varied in length between one month and five years. Reliance on historical covariances to estimate future covariances over a hold-out sample produced suboptimal results in comparison to an alternative naive forecasting model. These findings were robust in that they were invariant to whether nominal or real returns were used. Evidence on the intertemporal stationarity of the vector of mean returns is also provided. Copyright 1993 by MIT Press.

Suggested Citation

  • Wahab, Mahmoud & Lashgari, Malek, 1993. "Covariance Stationarity of International Equity Markets Returns: Recent Evidence," The Financial Review, Eastern Finance Association, vol. 28(2), pages 239-260, May.
  • Handle: RePEc:bla:finrev:v:28:y:1993:i:2:p:239-60

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    Cited by:

    1. M. Barari & Brian Lucey & S. Voronkova, 2008. "Reassessing co-movements among G7 equity markets: evidence from iShares," Applied Financial Economics, Taylor & Francis Journals, vol. 18(11), pages 863-877.
    2. Tang, Gordon Y. N., 1996. "Intervalling Effect on Intertemporal Stability among Asian Emerging Markets and Developed Markets," Journal of Business Research, Elsevier, vol. 36(3), pages 257-265, July.
    3. Bracker, Kevin & Koch, Paul D., 1999. "Economic determinants of the correlation structure across international equity markets," Journal of Economics and Business, Elsevier, vol. 51(6), pages 443-471.
    4. Vo, Xuan Vinh, 2009. "International financial integration in Asian bond markets," Research in International Business and Finance, Elsevier, vol. 23(1), pages 90-106, January.
    5. Gordon Tang, 1998. "The intertemporal stability of the covariance and correlation matrices of Hong Kong stock returns," Applied Financial Economics, Taylor & Francis Journals, vol. 8(4), pages 359-365.
    6. G. Y. N. Tang, 1995. "Stability of international stock market relationships across month of the year and different holding intervals," The European Journal of Finance, Taylor & Francis Journals, vol. 1(3), pages 207-218.
    7. Kearney, Colm & Lucey, Brian M., 2004. "International equity market integration: Theory, evidence and implications," International Review of Financial Analysis, Elsevier, vol. 13(5), pages 571-583.

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