Major World Equity Market Interdependence a Decade After the 1987 Crash: Evidence From Cross Spectral Analysis

Kenneth L. Smith

Journal of Business Finance & Accounting, 1999, vol. 26, issue 3‐4, 365-392

Abstract: Several studies have focused on the pre‐ post‐October 1987 crash. Results indicate that major market equity correlations rose during the crash period. Cross spectral analysis is applied to six of the G‐7 markets to determine whether frequency domain correlations have increased post‐crash relative to the pre‐crash period. The results indicate that correlations have increased for most of the markets studied. Most striking are the increased post‐crash correlations among the three European markets, in light of the European Union. Additional evidence shows mixed results regarding frequency domain phase leads among the markets.

Date: 1999
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