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The dynamics and drivers of global market integration: Regional and cultural factors matter

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  • Xiang, XueTing
  • Lim, Kian-Ping
  • Ong, Sheue-Li

Abstract

This study investigates the dynamics and drivers of global market integration using two Bayesian approaches that are commonly utilized in empirical growth literature. Applying a Bayesian Dynamic Factor Model to stock index data from 47 exchanges spanning 1995–2020, we find that regional factors play a crucial role in stock return variations, particularly for larger Asian and European markets. This challenges conventional measures of market integration that often overlook regional dynamics. Our time-varying measure of global market integration reveals that emerging markets exhibit unexpectedly higher levels of integration than developed markets when accounting for regional factors. To identify robust drivers of integration, we employ Instrumental Variable Bayesian Model Averaging, which addresses model uncertainty and endogeneity. Culture emerges as the most influential determinant, explaining 82.80 % of the variance in global market integration. These findings underscore the importance of cultural dimensions in shaping market reactions to global factors.

Suggested Citation

  • Xiang, XueTing & Lim, Kian-Ping & Ong, Sheue-Li, 2025. "The dynamics and drivers of global market integration: Regional and cultural factors matter," Research in International Business and Finance, Elsevier, vol. 78(C).
    • Handle: RePEc:eee:riibaf:v:78:y:2025:i:c:s0275531925002314
    DOI: 10.1016/j.ribaf.2025.102975
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    Keywords

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    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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