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A Critical Appraisal of Studies Analyzing Co-movement of International Stock Markets

Author

Listed:
  • Jan F. Kiviet

    (Amsterdam School of Economics University of Amsterdam)

  • Zhenxi Chen

    (School of Economics and Commerce; Research Center of Financial Engineering, South China University of Technology)

Abstract

Literature is reviewed on the analysis of co-movement between the price indices of stocks or their realized returns at various markets. Four major categories of frequently recurring methodological shortcomings are registered. These are: (i) omitted regressor problems, (ii) neglecting to verify agreement of estimation outcomes with adopted model assumptions, (iii) employing particular statistical tests in inappropriate situations and, occasionally, (iv) lack of identification. The devastating effects of the detected methodological defects are explained in mildly technical appendices and are also illustrated by simulations and empirical examples.

Suggested Citation

  • Jan F. Kiviet & Zhenxi Chen, 2018. "A Critical Appraisal of Studies Analyzing Co-movement of International Stock Markets," Annals of Economics and Finance, Society for AEF, vol. 19(1), pages 151-196, May.
    • Handle: RePEc:cuf:journl:y:2018:v:19:i:1:kiviet:chen
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    References listed on IDEAS

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    More about this item

    Keywords

    diagnostic tests; interlinkage of stock markets; maintained hypotheses; model specification; test methodology;
    All these keywords.

    JEL classification:

    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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