The Rise in Comovement Across National Stock Markets: Market Integration or Global Bubble?

Robin Brooks and Marco Del Negro

No 2002/147, IMF Working Papers from International Monetary Fund

Abstract: The degree of comovement across national stock markets has increased dramatically since the mid-1990s. This has overturned a stylized fact in the international portfolio diversification literature that diversifying across countries is more effective for risk reduction than diversifying across industries. We investigate if this rise in comovement is a permanent phenomenon driven by greater economic and financial integration, or a temporary effect associated with the recent stock market bubble. At the global level, our results point to the bubble. At a regional level, we find evidence of a significant rise in market integration within Europe, possibly a reflection of institutional changes such as the EMU.

Keywords: WP; industry effect; TMBT firm; TMBT sector; U.S. dollar; Diversification; risk; international financial markets; industrial structure; industry mean absolute deviations; industry factor; TMBT industry; Stock markets; Emerging and frontier financial markets; Market capitalization; Stocks; Financial integration; Europe; Western Europe; Global (search for similar items in EconPapers)
Pages: 23
Date: 2002-09-01
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Citations: View citations in EconPapers (40)

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