Linkages between the US and European equity markets: further evidence from cointegration tests

Angelos Kanas

Applied Financial Economics, 1998, vol. 8, issue 6, 607-614

Abstract: The paper employs the multivariate trace statistic P-super-ˆz, the Johansen method, and the recently proposed Bierens nonparametric approach to test for pairwise cointegration between the US and each of the six largest European equity markets, namely those of the UK, Germany, France, Switzerland, Italy, and the Netherlands. The analysis covers the period 03/01/83-29/11/96. The results from these tests are robust and consistent in suggesting that the US market is not pairwise cointegrated with any of the European markets, which is in contrast to previous evidence on the linkages between the US and European markets. This finding implies that there exist potential long-run benefits in risk reduction from diversifying in US stocks and stocks in any of the major European markets.

Date: 1998
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DOI: 10.1080/096031098332646

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