Linkages between emerging and developed equity markets: Empirical evidence in the PMG framework

Sabri Boubaker and Jamel Jouini ()

The North American Journal of Economics and Finance, 2014, vol. 29, issue C, 322-335

Abstract: This paper empirically investigates the international equity market causal links between Central and South-Eastern Europe, on the one hand, and developed countries (Western Europe and the United States), on the other hand, over the monthly sample period spanning from October 2000 to September 2012. Unlike previous studies, we use the pooled mean group (PMG) approach of Pesaran et al. (1999), which is suitable to estimate dynamic heterogeneous panels to draw reliable conclusions. After cointegration is found between the stock markets of interest, the PMG estimates show evidence of each market's sensitivity to the fluctuations of the other markets over both the short- and long-run, supporting the feedback hypothesis. The impact of developed markets on emerging markets is more important than that of emerging markets on developed markets and the bidirectional impact is higher between emerging and Western European markets than between these emerging markets and the United States. These conclusions are robust to an alternative specification, which supports the view that the stock markets are closely interlinked. The findings are of great interest and have important implications for policy makers, investors, and practitioners.

Keywords: Emerging equity markets; Developed stock markets; Causal linkage; Dynamic heterogeneous panels; PMG approach (search for similar items in EconPapers)
JEL-codes: C23 F3 G12 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (26)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:29:y:2014:i:c:p:322-335

DOI: 10.1016/j.najef.2014.06.004

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