Testing for international equity market integration using regime switching cointegration techniques

Andrew Davies

Review of Financial Economics, 2006, vol. 15, issue 4, 305-321

Abstract: Using MSCI total return index data, this paper analyses the degree of international equity market integration using modern cointegration techniques. The existence of a long run equilibrium across equity markets is important since it implies a violation of weak form market efficiency. Short run deviations away from equilibrium can be expected to reverse, thereby implying a degree of market predictability. This analysis adds to the existing literature by considering a regime switching cointegration relationship that allows for multiple structural breaks over time. The analysis provides scant evidence in favour of market integration with a single regime treatment. There is, however, significant evidence to support a two‐regime Markov switching long‐run equilibrium relationship that has evolved since the 1970s.

Date: 2006
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https://doi.org/10.1016/j.rfe.2005.11.002

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Persistent link: https://EconPapers.repec.org/RePEc:wly:revfec:v:15:y:2006:i:4:p:305-321

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