WHO DRIVES WHOM? INVESTIGATING THE RELATIONSHIP BETWEEN THE MAJOR STOCK MARKETS

Pinar Evrim Mandaci and Efe Cagli
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Pinar Evrim Mandaci: Department of Business Administration, Dokuz Eylul University, Turkey

Studii Financiare (Financial Studies), 2016, vol. 20, issue 2, 6-24

Abstract: In this paper we examine the relationships between the major stock markets including the U.S., the U.K, Japan, Germany and France covering a long period from July 1987 to December 2015 and employing Carrion-i-Silvestre et al. (2009) unit root tests and Maki (2012) cointegration test, both of which considering structural breaks. Additionally, we estimate the long-run elasticities of the co-integrating relationships by applying dynamic ordinary least squares algorithm of Stock and Watson (1993). And lastly, we investigate short-run linkages among stock markets using the Granger causality test across the subsamples determined according to the breakpoints. Our results indicate that these markets are mostly co-integrated. Among them only the Japanese market is mildly segmented proving a diversification benefit. Additionally, we observe a gradually decrease in the short-run relationship between these markets.

Keywords: Stock Market; Diversification; Cointegration; Structural Breaks; Financial Crisis (search for similar items in EconPapers)
JEL-codes: G11 G14 G15 (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:vls:finstu:v:20:y:2016:i:2:p:6-24

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