Testing for Convergence in Stock Markets: A Non-Linear Factor Approach
This paper applies the Phillips and Sul (2007) method to test for convergence in stock returns to an extensive dataset including monthly stock price indices for five EU countries (Germany, France, the Netherlands, Ireland and the UK) as well as the US over the period 1973-2008. We carry out the analysis on both sectors and individual industries within sectors. As a first step, we use the Stock and Watson (1998) procedure to filter the data in order to extract the long-run component of the series; then, following Phillips and Sul (2007), we estimate the relative transition parameters. In the case of sectoral indices we find convergence in the middle of the sample period, followed by divergence, and detect four (two large and two small) clusters. The analysis at a disaggregate, industry level again points to convergence in the middle of the sample, and subsequent divergence, but a much larger number of clusters is now found. Splitting the cross-section into two subgroups including Euro area countries, the UK and the US respectively, provides evidence of a global convergence/divergence process not obviously influenced by EU policies.
|Date of creation:||2009|
|Date of revision:|
|Contact details of provider:|| Postal: Poschingerstrasse 5, 81679 Munich|
Phone: +49 (89) 9224-0
Fax: +49 (89) 985369
Web page: http://www.cesifo-group.de
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hardouvelis, Gikas A. & Malliaropulos, Dimitrios & Priestley, Richard, 2007. "The impact of EMU on the equity cost of capital," Journal of International Money and Finance, Elsevier, vol. 26(2), pages 305-327, March.
- Bart Hobijn & Philip Hans Franses, 2000. "Asymptotically perfect and relative convergence of productivity," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 15(1), pages 59-81.
- William N. Goetzmann & Lingfeng Li & K. Geert Rouwenhorst, 2001.
"Long-Term Global Market Correlations,"
NBER Working Papers
8612, National Bureau of Economic Research, Inc.
- William N.Goetzmann & Lingfeng Li & K.Geert Rouwenhorst, 2003. "Long-Term Global Market Correlations," DNB Staff Reports (discontinued) 98, Netherlands Central Bank.
- William Goetzmann & Lingfeng Li & K. Rouwenhorst, 2001. "Long-Term Global Market Correlations," Yale School of Management Working Papers ysm237, Yale School of Management, revised 01 Jan 2008.
- Campa, José Manuel & Fernandes, Nuno, 2004.
"Sources of Gains from International Portfolio Diversification,"
CEPR Discussion Papers
4390, C.E.P.R. Discussion Papers.
- Campa, Jose Manuel & Fernandes, Nuno, 2006. "Sources of gains from international portfolio diversification," Journal of Empirical Finance, Elsevier, vol. 13(4-5), pages 417-443, October.
- Campa, Jose M. & Fernandes, Nuno, 2004. "Sources of gains from international portfolio diversification," IESE Research Papers D/559, IESE Business School.
- Adjaoute, Kpate & Danthine, Jean-Pierre, 2001.
"EMU and Portfolio Diversification Opportunities,"
CEPR Discussion Papers
2962, C.E.P.R. Discussion Papers.
- Jushan Bai, 2003. "Inferential Theory for Factor Models of Large Dimensions," Econometrica, Econometric Society, vol. 71(1), pages 135-171, January.
- Robert J. Barro & Xavier Sala-i-Martin, 1991.
"Convergence across States and Regions,"
Brookings Papers on Economic Activity,
Economic Studies Program, The Brookings Institution, vol. 22(1), pages 107-182.
- Peter C.B. Phillips & Donggyu Sul, 2007.
"Transition Modeling and Econometric Convergence Tests,"
Cowles Foundation Discussion Papers
1595, Cowles Foundation for Research in Economics, Yale University.
- Peter C. B. Phillips & Donggyu Sul, 2007. "Transition Modeling and Econometric Convergence Tests," Econometrica, Econometric Society, vol. 75(6), pages 1771-1855, November.
- Bernard, Andrew B. & Durlauf, Steven N., 1996.
"Interpreting tests of the convergence hypothesis,"
Journal of Econometrics,
Elsevier, vol. 71(1-2), pages 161-173.
- Bernard, A.B. & Durlauf, S.N., 1994. "Interpreting Tests of the Convergence Hypothesis," Working papers 9401r, Wisconsin Madison - Social Systems.
- Andrew B. Bernard & Steven N. Durlauf, 1994. "Interpreting Tests of the Convergence Hypothesis," NBER Technical Working Papers 0159, National Bureau of Economic Research, Inc.
- Steven N. Durlauf & Danny T. Quah, 1998.
"The New Empirics of Economic Growth,"
98-01-012, Santa Fe Institute.
- Durlauf,S.N. & Quah,D.T., 1998. "The new empirics of economic growth," Working papers 3, Wisconsin Madison - Social Systems.
- Steven N. Durlauf & Danny T. Quah, 1998. "The New Empirics of Economic Growth," NBER Working Papers 6422, National Bureau of Economic Research, Inc.
- S Durlauf & Danny Quah, 1998. "The New Empirics of Economic Growth," CEP Discussion Papers dp0384, Centre for Economic Performance, LSE.
- Chen, Zhiwu & Knez, Peter J, 1995. "Measurement of Market Integration and Arbitrage," Review of Financial Studies, Society for Financial Studies, vol. 8(2), pages 287-325.
- Ulrich Fritsche & Vladimir Kuzin, 2008. "Analysing Convergence in Europe Using a Non-linear Single Factor Model," Macroeconomics and Finance Series 200802, Hamburg University, Department Wirtschaft und Politik.
- Geert Bekaert & Campbell R. Harvey, 1994.
"Time-Varying World Market Integration,"
NBER Working Papers
4843, National Bureau of Economic Research, Inc.
- Nazrul Islam, 2003. "What have We Learnt from the Convergence Debate?," Journal of Economic Surveys, Wiley Blackwell, vol. 17(3), pages 309-362, 07.
- Barro, Robert J & Sala-i-Martin, Xavier, 1992.
Journal of Political Economy,
University of Chicago Press, vol. 100(2), pages 223-51, April.
- Barro, R.J. & Sala-I-Martin, X., 1991. "Convergence Across States and Regions," Papers 629, Yale - Economic Growth Center.
- Barro, Robert J. & Sala-i-Martin, Xavier, 1992. "Convergence," Scholarly Articles 3451299, Harvard University Department of Economics.
- Barro, R.J. & Sala-I-Martin, X., 1991. "Convergence," Papers 645, Yale - Economic Growth Center.
- Brooks, Robin & Del Negro, Marco, 2004.
"The rise in comovement across national stock markets: market integration or IT bubble?,"
Journal of Empirical Finance,
Elsevier, vol. 11(5), pages 659-680, December.
- Robin Brooks & Marco Del Negro, 2002. "The rise in comovement across national stock markets: market integration or IT bubble?," FRB Atlanta Working Paper 2002-17, Federal Reserve Bank of Atlanta.
- Heston, Steven L. & Rouwenhorst, K. Geert, 1994. "Does industrial structure explain the benefits of international diversification?," Journal of Financial Economics, Elsevier, vol. 36(1), pages 3-27, August.
- Kpate ADJAOUTÉ & Jean-Pierre DANTHINE, 2003. "European Financial Integration and Equity Returns: A Theory-Based Assessment," FAME Research Paper Series rp84, International Center for Financial Asset Management and Engineering.
When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_2845. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Klaus Wohlrabe)
If references are entirely missing, you can add them using this form.