Comovements and correlations in international stock markets

Abstract

The interrelationship between international stock markets is a key issue in international portfolio management and risk measurement. The dynamics of security returns and their risk characteristics have a crucial role in the financial market theory. Recent empirical studies have tested market efficiency measuring the degree of integration of international financial markets. These studies have shown that international markets react quickly to news but they are volatile and difficult to predict, with a changing correlation structure of security returns among countries. In this paper the nature of the relationship between the major international stock markets in Canada, Japan, UK and the US, is analysed using the common trends and common cycles approach. The presence of co-movements is investigated to try to detect a long-term stationary component, the common trend, and a short-term stationary cyclical component, among international stock markets. The implications for international portfolio management are also discussed.Common cycles, common trends, cointegration, VECM, market diversification,

Análise de integração e contágio financeiro na América do Sul

“…Outro aspecto comum aos índices do continente é a evidência de que as expansões transitórias possuem menor magnitude e persistência que as contrações, estas associadas aos ciclos comuns negativos. 10 Esses resultados corroboram as evidências e os argumentos teóricos reportados em D'ecclesia e Costantini (2006). Estes autores, ao analisarem empiricamente as tendências e ciclos comuns em cinco dos mais desenvolvidos mercados financeiros no mundo, sugerem que o efeito contágio, motivado no caso pelos canais de liquidez e rebalanceamento cross-country, seja mais evidente em razão de eventos extremos globais, positivos ou negativos, capazes de provocar oscilações de curto prazo mais acentuadas e em direções comuns, cenário que se observa quando do período a crise financeira iniciada em 2007.…”

Impact of global macroeconomic factors on spillovers among Australian sector markets: Fresh findings from a wavelet‐based analysis

“…In both circumstances, an empirical investigation of connectedness dynamics is needed based on the proportionate interest of the specific stakeholders in the study sample. In this context, a wide range of empirical financial studies have examined volatility and return spillover between international, regional and local markets (Bekaert, Hodrick, & Zhang, 2009; Cagliesi & Guidi, 2021; D'Ecclesia & Costantini, 2006; Patel, Goodell, Oriani, Paltrinieri, & Yarovaya, 2022), as well as sectoral indices (BenSaïda et al, 2022; Hernandez et al, 2022; Mensi, Hammoudeh, Sensoy, & Yoon, 2017; Tiwari et al, 2018b), asset classes (Aharon & Demir, 2022; Bouri et al, 2018; Tiwari et al, 2018a; Yoon, Al Mamun, Uddin, & Kang, 2019) and commodities (Hernandez, Kang, & Yoon, 2021; Kang, Tiwari, Albulescu, & Yoon, 2019; Kang & Yoon, 2020; Mensi, Lee, Vo, & Yoon, 2021). However, little attention has been paid to studying the influence of global macroeconomic variables on stock sector market connectedness.…”