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Stock market integration: evidence on price integration and return convergence

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  • Kari Heimonen

Abstract

This study evaluates stock market integration between the USA, UK, Germany, Japan and Finland from the point of view of the international investor. Several definitions of convergence were employed all of which yielded a slightly different inference on integration. First, evidence on long-run stock price convergence suggested that the UK and German stock markets accommodate to changes in US stock prices, whereas the Finnish and Japanese stock markets are considered to be segmented. Second, evidence of convergence of excess returns indicated that due to expectations on exchange rate changes expected stock returns may overestimate the benefits from portfolio diversification. Third, regarding the actual changes in the exchange rate the UK, German, Japanese and Finnish stock returns converged towards the returns in the US market in an extent which suggests the importance of a covariance over the variance as a measure of risk.

Suggested Citation

  • Kari Heimonen, 2002. "Stock market integration: evidence on price integration and return convergence," Applied Financial Economics, Taylor & Francis Journals, vol. 12(6), pages 415-429.
  • Handle: RePEc:taf:apfiec:v:12:y:2002:i:6:p:415-429 DOI: 10.1080/09603100010001108
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    References listed on IDEAS

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    Cited by:

    1. Li Yang & Francis Tapon & Yiguo Sun, 2006. "International correlations across stock markets and industries: trends and patterns 1988-2002," Applied Financial Economics, Taylor & Francis Journals, pages 1171-1183.
    2. Kian-Ping Lim & Hock-Ann Lee & Venus Khim-Sen Liew, 2003. "International Diversification Benefits in ASEAN Stock Markets: a Revisit," Finance 0308003, EconWPA.
    3. repec:rjr:romjef:v::y:2017:i:3:p:110-129 is not listed on IDEAS
    4. repec:lan:wpaper:2452 is not listed on IDEAS
    5. Hock-Ann Lee & Kian-Ping Lim & Venus Khim-Sen Liew, 2009. "Is There Any International Diversification Benefits in ASEAN Stock Markets?," Economics Bulletin, AccessEcon, vol. 29(1), pages 392-406.
    6. repec:lan:wpaper:2594 is not listed on IDEAS
    7. Panayiotis Alexakis & Anna Vasila, 2010. "Equity Interconnections in Major European Markets," European Research Studies Journal, European Research Studies Journal, vol. 0(3), pages 109-132.
    8. Tsutsui, Yoshiro & Hirayama, Kenjiro, 2005. "Estimation of the common and country-specific shock to stock prices," Journal of the Japanese and International Economies, Elsevier, vol. 19(3), pages 322-337, September.
    9. Shenqiu Zhang & Ivan Paya & David Peel, 2009. "Linkages between Shanghai and Hong Kong stock indices," Applied Financial Economics, Taylor & Francis Journals, pages 1847-1857.
    10. repec:lan:wpaper:2371 is not listed on IDEAS
    11. Shenqiu Zhang & Ivan Paya & David Peel, 2009. "Linkages between Shanghai and Hong Kong stock indices," Applied Financial Economics, Taylor & Francis Journals, pages 1847-1857.
    12. Li, Hong & Majerowska, Ewa, 2008. "Testing stock market linkages for Poland and Hungary: A multivariate GARCH approach," Research in International Business and Finance, Elsevier, vol. 22(3), pages 247-266, September.

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