On the globalization of stock markets: An application of VECM, SSA technique and mutual information to the G7?
This paper analyzes the process of stock market globalization on the basis of two different approaches: (i) the linear one, based on cointegration tests and vector error correction models (VECM); and (ii) the nonlinear approach, based on Singular Spectrum Analysis (SSA) and mutual information tests. While the cointegration tests are based on regression models and typically capture linearities in the data, mutual information and SSA are well suited for capturing global non-parametric relationships in the data without imposing any structure or restriction on the model. The data used in our empirical analysis were drawn from DataStream and comprise the natural logarithms of relative stock market indexes since 1973 for the G7 countries. The main results point to the conclusion that significant causal effects occur in this context and that mutual information and the global correlation coefficient actually provide more information on this process than VECM, but the direction of causality is difficult to distinguish in the former case. In this field, SSA shows some advantages, since it enabled us to capture the nonlinear causality in both directions. In all cases, however, there is evidence that stock markets are closely related in the long-run over the 36 years analyzed and, in this sense, one may say that they are globalized.
|Date of creation:||2010|
|Contact details of provider:|| Postal: Colégio Espírito SANTO|
Phone: (351) 266 740 869
Web page: http://www.cefage.uevora.pt
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.:
- Hassani, Hossein & Heravi, Saeed & Zhigljavsky, Anatoly, 2009. "Forecasting European industrial production with singular spectrum analysis," International Journal of Forecasting, Elsevier, vol. 25(1), pages 103-118.
- Hamao, Yasushi & Masulis, Ronald W & Ng, Victor, 1990. "Correlations in Price Changes and Volatility across International Stock Markets," Review of Financial Studies, Society for Financial Studies, vol. 3(2), pages 281-307.
- Marco Corazza & A. Malliaris & Elisa Scalco, 2010. "Nonlinear Bivariate Comovements of Asset Prices: Methodology, Tests and Applications," Computational Economics, Springer;Society for Computational Economics, vol. 35(1), pages 1-23, January.
- Andreia Dionisio & Rui Menezes & Diana A. Mendes, 2003. "Mutual information: a dependence measure for nonlinear time series," Econometrics 0311003, EconWPA.
When requesting a correction, please mention this item's handle: RePEc:cfe:wpcefa:2010_06. 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: (Angela Pacheco)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.