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International stock market leadership and its determinants

Charlie X. Cai, Asma Mobarek and Qi Zhang

Journal of Financial Stability, 2017, vol. 33, issue C, 150-162

Abstract: We study time-varying price leadership between international stock markets using a Markov switching causality model. We demonstrate variations in the causality pattern over time, with the US being the dominant country in causing other markets. We examine the factors which determine a country’s role in the causal relationship. For country-specific factors, we show that trades openness increases price leadership. We also find that the lead–lag relationship between the stock markets is weaker during crisis periods, confirming the “wake-up call” hypothesis, with markets and investors focusing substantially more on idiosyncratic, country-specific characteristics during the crisis.

Keywords: Causality; Price leadership; Financial crisis; Causality factors (search for similar items in EconPapers)
JEL-codes: G12 G10 (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:33:y:2017:i:c:p:150-162

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