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Identifying Asymmetric Comovements of International Stock Market Returns

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  • Fuchun Li

Abstract

Based on a new approach for measuring the comovements between stock market returns, we provide a new test for the null hypothesis of symmetric comovements in the sense that stock market downturns will lead to the same degree of comovements as market upturns. Since the new measure of comovements can be used to measure the strength of both linear and nonlinear dependence, our test can be used to identify whether there exist asymmetric comovements induced by a linear or nonlinear dependence. The test is applied to detect whether asymmetric comovements exist in international stock markets. We find that asymmetric comovements exist between the U.S. stock market and the stock markets of Canada, France, Germany, and the United Kingdom, but the data are unable to reject the null hypothesis of the symmetric comovements between the U.S. and Japanese stock markets.

Suggested Citation

  • Fuchun Li, 2014. "Identifying Asymmetric Comovements of International Stock Market Returns," Journal of Financial Econometrics, Oxford University Press, vol. 12(3), pages 507-543.
    • Handle: RePEc:oup:jfinec:v:12:y:2014:i:3:p:507-543.
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    File URL: http://hdl.handle.net/10.1093/jjfinec/nbt006
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    Citations

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    Cited by:

    1. O‐Chia Chuang & Xiaojun Song & Abderrahim Taamouti, 2022. "Testing for Asymmetric Comovements," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 84(5), pages 1153-1180, October.
    2. Kaihua Deng, 2015. "Power Attrition of Asymmetric Tail Comovement Test," Economics Bulletin, AccessEcon, vol. 35(4), pages 2813-2819.
    3. Ana Carolina Costa Correa & Tabajara Pimenta Júnior & Luiz Eduardo Gaio, 2018. "Interdependence and asymmetries: Latin American ADRs and developed markets," Brazilian Business Review, Fucape Business School, vol. 15(4), pages 391-409, July.
    4. Linyu Cao & Ruili Sun & Tiefeng Ma & Conan Liu, 2023. "On Asymmetric Correlations and Their Applications in Financial Markets," JRFM, MDPI, vol. 16(3), pages 1-18, March.
    5. Fousekis, Panos & Grigoriadis, Vasilis, 2019. "Integration and Hierarchy of Pork Markets in the EU: An Analysis from the Vantage of Graph Theory," German Journal of Agricultural Economics, Humboldt-Universitaet zu Berlin, Department for Agricultural Economics, vol. 68(2), June.
    6. Chen, Peng, 2018. "Understanding international stock market comovements: A comparison of developed and emerging markets," International Review of Economics & Finance, Elsevier, vol. 56(C), pages 451-464.
    7. Deng, Kaihua, 2016. "A test of asymmetric comovement for state-dependent stock returns," Journal of Empirical Finance, Elsevier, vol. 36(C), pages 68-85.
    8. Pan, Zhiyuan & Wang, Yudong & Wu, Chongfeng, 2016. "A nonparametric approach to test for predictability," Economics Letters, Elsevier, vol. 148(C), pages 10-16.

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