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Why do Markets Move Together? An Investigation of U.S.-Japan Stock Return Comovements

This study explores empirically the fundamental factors that affect cross-country stock return correlations. Using transactions data from 1988 to 1992, we construct overnight and intraday returns for a portfolio of Japanese stocks using their NYSE-traded American Depository Receipts (ADRs) and a matched-sample portfolio of U.S. stocks. We find that U.S. macroeconomic announcements, shocks to the Yen/Dollar foreign exchange rate and Treasury bill returns and industry effects have no measurable influence on U.S. and Japanese return correlations. However, large shocks to broad-based market indices (Nikkei Stock Average and Standard and Poor's 500 Stock Index) positively impact both the magnitude and persistence of the return correlations.

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File URL: http://www.cob.ohio-state.edu/~fin/journal/dice/papers/1995/95-1.pdf
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Paper provided by Ohio State University in its series Research in Financial Economics with number 9603.

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Handle: RePEc:wop:ohsrfe:9603
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