Comovements in National Stock Market Returns: Evidence of Predictability But Not Cointegration

Anthony Richards

No 1996/028, IMF Working Papers from International Monetary Fund

Abstract: This paper is a response to the literature that tests for cointegration between national stock market indices. It argues that apparent findings of cointegration in other studies may often be due to the use of asymptotic, rather than small-sample, critical values. In fact, economic theory suggests that cointegration is unlikely to be observed in efficient markets. However, this paper finds some evidence for the long-horizon predictability of relative returns, and the existence of “winner-loser” reversals across 16 national equity markets. A conclusion is that national stock market indices include a common world component and two country-specific components, one permanent and one transitory.

Keywords: WP; return indices; total return; mean reversion; time series; return index; expected return; test statistics; Stock markets; Asset prices; Stocks; Vector autoregression; Price indexes (search for similar items in EconPapers)
Pages: 30
Date: 1996-04-01
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Citations: View citations in EconPapers (27)

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Journal Article: Comovements in national stock market returns: Evidence of predictability, but not cointegration (1995)
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Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:1996/028

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