Cointegration of Equity Markets in Three Country Groups of OECD Countries

Dosse Toulaboe ()
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Dosse Toulaboe: Fort Hays State University, USA

Eurasian Journal of Economics and Finance, 2022, vol. 10, issue 1, 11-31

Abstract: This paper investigates the stock market integration in North America, the Eurozone, and other OECD countries. The main questions addressed include whether the stock markets in each of the three country groups are cointegrated and whether the relationships are stable over time. The linkages are modeled using different statistical tools, including correlation, cointegration, vector-error correction, and Granger causality tests. The results show that the correlation coefficients are noticeably higher for the two country groups that are members of a trade or currency zone (NAFTA and the Eurozone) compared to the other OECD countries. Considering full samples, the results from the cointegration tests point to no cointegration for NAFTA markets, while they are mixed in the case of the other two country groups. After controlling for structural breaks by estimating the models for different sub-periods, the verdicts from the two cointegration tests were unanimous as the results unveil evidence of cointegration in each sub-periods for each of the three country groups. The results support the hypothesis that financial markets in the OECD countries are cointegrated. They also confirm the existence of structural breaks, the dynamic nature of the long-run integration of equity markets, and the argument that markets exhibit time-varying long-run interdependence.

Keywords: Cointegration; Stock Market Integration; NAFTA; Eurozone; OECD; Granger Causality (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:ejn:ejefjr:v:10:y:2022:i:1:p:11-31

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