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How interrelated are MIST equity markets with the developed stock markets of the world?

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  • Vinodh Madhavan

Abstract

This study explores the long-run and short-term relationship between the Mexico, Indonesia, South Korea, and Turkey (MIST) equity markets and the developed stock markets such as US, UK, Germany, Japan, Hong Kong, and Singapore. To start with, the author employs static bivariate and multivariate Johansen cointegration tests to test for long-run relationship between each of MIST equity markets and the developed stock markets. Subsequently, the author employs the recursive multivariate Johansen cointegration tests to garner a better understanding of the evolution of extent of integration between MIST and the developed stock markets. Static and Recursive Johansen Test findings reveal lack of consistent cointegrating relationship between MIST and developed markets (DM). Consequently, MIST equity markets do offer portfolio diversification avenues for international investors. On the short-term front, the time-varying correlations for each MIST-DM pair of stock indices were examined using the Dynamic Conditional Correlation (DCC) specification of the Multivariate GARCH. Of all the developed stock markets considered for this study, Mexico is found to exhibit high DCC with US and least amount of DCC with Japan while Indonesia is found to exhibit high DCC with Singapore and Hong Kong and least amount of DCC with US. Lastly, when it comes to South Korea, it exhibits the least amount of DCC with US and high DCC with Hong Kong, Singapore, and Japan.

Suggested Citation

  • Vinodh Madhavan, 2017. "How interrelated are MIST equity markets with the developed stock markets of the world?," Cogent Economics & Finance, Taylor & Francis Journals, vol. 5(1), pages 1362822-136, January.
    • Handle: RePEc:taf:oaefxx:v:5:y:2017:i:1:p:1362822
    DOI: 10.1080/23322039.2017.1362822
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