Identifying Asymmetric Comovements of International Stock Market Returns

Fuchun Li

Journal of Financial Econometrics, 2014, vol. 12, issue 3, 507-543

Abstract: Based on a new approach for measuring the comovements between stock market returns, we provide a new test for the null hypothesis of symmetric comovements in the sense that stock market downturns will lead to the same degree of comovements as market upturns. Since the new measure of comovements can be used to measure the strength of both linear and nonlinear dependence, our test can be used to identify whether there exist asymmetric comovements induced by a linear or nonlinear dependence. The test is applied to detect whether asymmetric comovements exist in international stock markets. We find that asymmetric comovements exist between the U.S. stock market and the stock markets of Canada, France, Germany, and the United Kingdom, but the data are unable to reject the null hypothesis of the symmetric comovements between the U.S. and Japanese stock markets.

Date: 2014
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