EXAMINING TIME-VARYING INTEGRITY AND INTERRELATIONSHIPS AMONG GLOBAL STOCK MARKETS

Abstract

This paper examines co-movements and interrelationships among six emerging and five developed stock market returns over the period 2001–2017. First, principal components are extracted from returns. The results show that, for the analyzed period, there is no strong global stock market integration and no significant change in the patterns of return correlations, except for short-term disturbances during the global financial crisis. Second, partial least squares regression models are used to predict each stock market’s returns using other stock markets’ current and all markets’ lagged returns of up to three months. The results identify a divergence between developed and emerging markets and a greater number of latent transmission channels among the former. The findings indicate that strong integration among global stock markets has not yet emerged and, when considered together with previous studies, suggest that today’s international market structure can be attributed to developments in the last two decades of the 20th century. International investors may still benefit from opportunities for international portfolio diversification.

Data:
Received: 12 Mar 2020
Revised: 26 Apr 2020
Accepted: 6 Jun 2020
Published: 20 Jun 2020