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Comovement in international equity markets: A sectoral view

Author

Listed:
  • Robert-Paul Berben

    (De Nederlandsche Bank)

  • W. Jos Jansen

    (De Nederlandsche Bank)

Abstract

We investigate shifts in correlation patterns among international equity returns at the market level as well as the industry level. We develop a novel bivariate GARCH model for equity returns with a smoothly time- varying correlation and then derive a Lagrange Multiplier statistic to test the constant-correlation hypothesis directly. Applying the test to weekly data from Germany, Japan, the UK and the US in the period 1980- 2000, we find that correlations among the German, UK and US stock markets have doubled, whereas Japanese correlations have remained the same. Both dates of change and speeds of adjustment vary widely across countries and sectors.

Suggested Citation

  • Robert-Paul Berben & W. Jos Jansen, 2003. "Comovement in international equity markets: A sectoral view," Finance 0310001, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpfi:0310001
    Note: Type of Document - pdf; prepared on pc; to print on HP, A4 page format; pages: 28 ; figures: included. Final version, forthcoming in Journal of International Money and Finance
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    More about this item

    Keywords

    stock market linkages; financial integration; smooth transition;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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