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Stock Market Integration and the Speed of Information Transmission

Using a unique dataset covering two years of high frequency data on the indices from markets in the U. S., London, Frankfurt, Paris, Warsaw, Prague, and Budapest, we perform cointegration and Granger causality tests with data of different frequencies (from 5 minutes to 1 day). The aim is to describe the time structure in which markets react to the information revealed in prices on other markets. The results suggest that the speed of information transmission is very fast. In all cases the strongest reaction occurs within 1 hour. Therefore, the use of daily data may be misleading when analyzing the issues of stock market integration and information transmission between markets.

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Article provided by Charles University Prague, Faculty of Social Sciences in its journal Finance a uver - Czech Journal of Economics and Finance.

Volume (Year): 58 (2008)
Issue (Month): 01-02 (January)
Pages: 2-20

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Handle: RePEc:fau:fauart:v:58:y:2008:i:1-2:p:2-20
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  1. Jon Wongswan, 2006. "Transmission of Information across International Equity Markets," Review of Financial Studies, Society for Financial Studies, vol. 19(4), pages 1157-1189.
  2. Richard Podpiera, 2000. "Efficiency of Financial Markets in Transition: The Case of Macroeconomic Releases," CERGE-EI Working Papers wp156, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
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  8. Bracker, Kevin & Docking, Diane Scott & Koch, Paul D., 1999. "Economic determinants of evolution in international stock market integration," Journal of Empirical Finance, Elsevier, vol. 6(1), pages 1-27, January.
  9. Richard Podpiera, 2001. "International Cross-Listing: The Effects of Market Fragmentation and Information Flows," Finance 0106002, EconWPA.
  10. Cheung, Yin-Wong & Lai, Kon S, 1995. "Lag Order and Critical Values of the Augmented Dickey-Fuller Test," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(3), pages 277-80, July.
  11. Granger, Clive W J, 1986. "Developments in the Study of Cointegrated Economic Variables," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 48(3), pages 213-28, August.
  12. M. Ehrmann & M. Fratzscher, 2003. "Interdependence between the Euro area and the U.S.: what role for EMU?," Proceedings, Board of Governors of the Federal Reserve System (U.S.).
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  15. Ray Yeu-Tien Chou & Victor Ng & Lynn K. Pi, 1994. "Cointegration of International Stock Market Indices," IMF Working Papers 94/94, International Monetary Fund.
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