Stock market integration - an application of the stochastic permanent breaks model

Bwo-Nung Huang and Robert Fok

Applied Economics Letters, 2001, vol. 8, issue 11, 725-729

Abstract: Using the Stochastic Permanent Breaks (STOPBREAK) model, this study examines the relationships of the US stock market with the Japanese and eight European stock markets. The evidence indicates that the US stock market is temporally cointegrated with the markets in Japan, Germany, Netherlands and Switzerland. However, cointegration relationship exists only between the US and Netherlands market when the Johansen cointegration test is used. In other words, some sort of cointegrating relationships may exist between two markets even if the standard cointegration test indicates that the two markets are not cointegrated. According to the STOPBREAK model, when two markets are temporally cointegrated, the movement of the two markets does not follow a random walk and market inefficiency is implied.

Date: 2001
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Persistent link: https://EconPapers.repec.org/RePEc:taf:apeclt:v:8:y:2001:i:11:p:725-729

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DOI: 10.1080/135048500110036337

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