A critical appraisal of studies analyzing co-movement of international stock markets with a focus on East-Asian indices

Jan Kiviet and Zhenxi Chen
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Zhenxi Chen: Faculty of Economics, Business and Social Sciences, Christian-Albrechts University, Olshausen- strasse 40, 24118 Kiel, Germany

No 1606, Economic Growth Centre Working Paper Series from Nanyang Technological University, School of Social Sciences, Economic Growth Centre

Abstract: Literature is reviewed on the analysis of co-movement between the price indices of stocks or their realized revenues at various markets. Four major categories of frequently recurring methodological shortcomings are registered. These are: (i) omitted regressor problems, (ii) neglecting to verify agreement of estimation outcomes with adopted model assumptions, (iii) employing particular statistical tests in inappropriate situations and, occasionally, (iv) lack of identiÖcation. We focus on studies regarding the interlinkages between emerging and more developed stock markets, in particular those in East-Asia and Wall Street. The devastating e§ects of the detected methodological defects are explained analytically and also illustrated by simulations and empirical examples.

Keywords: diagnostic tests; interlinkage of stock markets; maintained hypotheses; model speciÖcation; test methodology (search for similar items in EconPapers)
JEL-codes: C18 C52 C58 G15 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2016-02
New Economics Papers: this item is included in nep-sea
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Persistent link: https://EconPapers.repec.org/RePEc:nan:wpaper:1606

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