Robust Global Stock Market Interdependencies

Brian Lucey and Cal Muckley
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Cal Muckley: Smurfirt Business School, University College Dublin, Dublin 4, Ireland

The Institute for International Integration Studies Discussion Paper Series from IIIS

Abstract: In this paper, we examine the scope for international stock portfolio diversification, from the viewpoint of a United States representative investor, in regard to both the Asian and theEuropean stock markets. Our findings indicate that despite correlation style evidence to thecontrary, the European stock markets provide a superior long-term diversification opportunity relative to that provided by the Asian stock markets. Hence, a short-term measurement of interdependence appears to be uninformative with respect to the diversification opportunities of investors with longer term investment horizons. In terms of methodology, we adopt common stochastic trend tests, including a common stochastic trend test which accounts for generalised autoregressive conditional heteroskedasticity effects in conjunction with the recursive estimation of these tests to estimate the development of longterm stock market interdependence linkages. Recursively estimated robust correlations between the international stock markets are utilised to reveal the nature of short-term stock market interdependence linkages.

Keywords: Stock Market Linkages; Portfolio Diversification; Correlation; Cointegration (search for similar items in EconPapers)
JEL-codes: F3 G1 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2011-02
New Economics Papers: this item is included in nep-fmk and nep-ifn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

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Journal Article: Robust global stock market interdependencies (2011)
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