The effects of uncertainty on the dynamics of stock market interdependence: Evidence from the time-varying cointegration of the G7 stock markets

Hamid Babaei, Georges Hübner and Aline Muller

Journal of International Money and Finance, 2023, vol. 139, issue C

Abstract: This study investigates the dynamic pattern of interdependence among the stock markets of the G7 member countries over the period from 1990 to 2023. The state-space formulation of the time-varying cointegrating coefficient makes it possible to examine the potential drivers of disruption in the long-run co-movement of markets. The results reveal that variations in a number of financial risk factors, economic policy uncertainty (EPU) and world geopolitical risk (GPR), have a significant impact on cointegrating coefficients. Further analysis on the co-movement of the augmented and the unaugmented cointegrating coefficients suggests that globalisation has reduced market segmentation causes to our risk factors.

Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:139:y:2023:i:c:s0261560623001626

DOI: 10.1016/j.jimonfin.2023.102961

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