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International correlations across stock markets and industries: trends and patterns 1988-2002

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  • Li Yang
  • Francis Tapon
  • Yiguo Sun

Abstract

Data from eight major stock markets world-wide and five industries in each market are analysed. The correlations of return indices between countries and industries are studied with the hope of finding answers or confirming previous empirical answers to the following questions and the implications of these findings for investment strategy determined. (1) Do both the country-specific correlations and industry-specific correlations fluctuate significantly over time between 1988 and 2002? (2) Are the country-specific and industry-specific correlations positively related to stock market volatilities? It is concluded that: First, the correlations among national stock markets have been increasing between 1988 and 2002 and the correlations are not constant over the time period of this research. This indicates that the effect of globalization outweighs country-specific factors in determining the co-movements of the markets. Second, the correlations are positively related to volatility in the stock markets in this sample. Correlations rise in periods when conditional volatility of markets is large. Finally, in most cases, correlations between national stock markets are greater than those between the five industries chosen in these markets, indicating that investment diversification across industries provides greater risk reduction benefits than diversification across countries.

Suggested Citation

  • 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, vol. 16(16), pages 1171-1183.
  • Handle: RePEc:taf:apfiec:v:16:y:2006:i:16:p:1171-1183
    DOI: 10.1080/09603100500447529
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    References listed on IDEAS

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    Cited by:

    1. Lee, Chien-Chiang & Chen, Mei-Ping & Chang, Chi-Hung, 2013. "Dynamic relationships between industry returns and stock market returns," The North American Journal of Economics and Finance, Elsevier, vol. 26(C), pages 119-144.
    2. Massimo Guidolin & Stuart Hyde, 2009. "What tames the Celtic Tiger? Portfolio implications from a Multivariate Markov Switching model," Applied Financial Economics, Taylor & Francis Journals, vol. 19(6), pages 463-488.
    3. Paramati, Sudharshan Reddy & Gupta, Rakesh & Tandon, Kishore, 2016. "Dynamic Analysis of Time-Varying Correlations and Cointegration Relationship between Australia and Frontier Equity Markets," MPRA Paper 88512, University Library of Munich, Germany, revised Mar 2016.
    4. Araújo, Eurilton, 2009. "Macroeconomic shocks and the co-movement of stock returns in Latin America," Emerging Markets Review, Elsevier, vol. 10(4), pages 331-344, December.
    5. Zura Kakushadze & Willie Yu, 2017. "Open Source Fundamental Industry Classification," Papers 1706.04210, arXiv.org, revised Dec 2017.
    6. Marguerite Schneider & Lori Ryan, 2011. "A review of hedge funds and their investor activism: do they help or hurt other equity investors?," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 15(3), pages 349-374, August.
    7. Martin Bohl & Pierre Siklos, 2008. "Empirical evidence on feedback trading in mature and emerging stock markets," Applied Financial Economics, Taylor & Francis Journals, vol. 18(17), pages 1379-1389.
    8. Qing Xu & Xiao-Ming Li, 2009. "Estimation of dynamic asymmetric tail dependences: an empirical study on Asian developed futures markets," Applied Financial Economics, Taylor & Francis Journals, vol. 19(4), pages 273-290.

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