On the integration of financial markets: How strong is the evidence from five international stock markets?

Sónia R. Bentes

Physica A: Statistical Mechanics and its Applications, 2015, vol. 429, issue C, 205-214

Abstract: This paper examines the integration of financial markets using data from five international stock markets in the context of globalization. The theoretical basis of this study relies on the price theory and the Law of One Price, which was adjusted to the framework of financial markets. When price levels are nonstationary, cointegration and the error correction model constitute a powerful tool for the empirical examination of market integration. The error correction model provides a fully dynamic framework that allows to separating the long and the short run effects of the integration process. A dataset encompassing the daily stock price series of the PSI 20 (Portugal), IBEX 35 (Spain), FTSE 100 (UK), NIKKEI 225 (Japan) and SP 500 (US) indices from January 4th 1999 to September 19th 2014 is employed.

Keywords: Market integration; Law of one price; Nonlinearity; Vector error correction model (search for similar items in EconPapers)
Date: 2015
References: View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:429:y:2015:i:c:p:205-214

DOI: 10.1016/j.physa.2015.02.070

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