Why Can Weak Linkages Cause International Stock Market Synchronization? The Mode-Locking Effect

Larry Filer () and David Selover

International Journal of Financial Research, 2014, vol. 5, issue 3, 20-42

Abstract: This study investigates the synchronization between stock markets in different countries. International stock markets tend to synchronize with one another in what appears to be an international financial cycle, yet trade and capital flows between the stock markets do not appear to be strong enough for one stock market to ¡°drive¡± fluctuations in another stock market. Why are these weakly linked financial markets synchronized? This study suggests that global stock market synchronization results from a ¡°mode-locking¡± phenomenon, a nonlinear process in which even a weak coupling between oscillating systems like stock markets tends to synchronize the fluctuations between the systems. Simulations, econometric analysis, and spectral analysis investigate this mode-locking hypothesis. Analysis reveals modest support for the mode-locking hypothesis of international stock market synchronization.

Keywords: international stock markets; stock market synchronization; mode-locking; phase-locking; financial market synchronization; financial linkages; international business cycles (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (2)

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