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Why Can Weak Linkages Cause International Stock Market Synchronization? The Mode-Locking Effect

Author

Listed:
  • Larry Filer
  • David D. Selover

Abstract

This study investigates the synchronization between stock markets in different countries. International stock markets tend to synchronize with one another in what appears to be an international financial cycle, yet trade and capital flows between the stock markets do not appear to be strong enough for one stock market to ¡°drive¡± fluctuations in another stock market. Why are these weakly linked financial markets synchronized? This study suggests that global stock market synchronization results from a ¡°mode-locking¡± phenomenon, a nonlinear process in which even a weak coupling between oscillating systems like stock markets tends to synchronize the fluctuations between the systems. Simulations, econometric analysis, and spectral analysis investigate this mode-locking hypothesis. Analysis reveals modest support for the mode-locking hypothesis of international stock market synchronization.

Suggested Citation

  • Larry Filer & David D. Selover, 2014. "Why Can Weak Linkages Cause International Stock Market Synchronization? The Mode-Locking Effect," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 5(3), pages 20-42, July.
    • Handle: RePEc:jfr:ijfr11:v:5:y:2014:i:3:p:20-42
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    References listed on IDEAS

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    2. G. Rigatos & P. Siano & T. Ghosh, 2019. "A Nonlinear Optimal Control Approach to Stabilization of Business Cycles of Finance Agents," Computational Economics, Springer;Society for Computational Economics, vol. 53(3), pages 1111-1131, March.

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