Long‐Term Global Market Correlations (original) (raw)

Correlation dynamics of global industry portfolios

Journal of Multinational Financial Management, 2010

This paper investigates the time series of realized correlations between global industries and the world market over the 1979-2008 period. The behavior of industry correlations is characterized by long-term swings, with a period of historically low correlations in the late 1990s. The Telecommunications and the Financials industries show a positive secular trend. Global industry correlations move countercyclically. Furthermore, there is evidence that industry correlations are higher for market downside moves than for upside moves.

What drives correlation between stock market returns? : International evidence

2005

This paper proposes to model time-varying conditional correlation as a function of conditional volatilities and possible additional explanatory variables via logit-type regression. The advantage of this approach is that it allows us to study the contributions of internal national market volatilities, external world market volatility, and some other factors to the correlation between stock market returns. Empirical investigation of the incremental effect of volatility on correlation is reported for a number of stock markets in North America, Asia, and Europe. Our results reveal that time-varying correlations between stock markets are primarily dependent on national and world market volatilities. Weaker evidence is found that correlations are driven by market downturns. Also, we find that correlations have been increasing between national markets in recent years.

Persistent Correlations in Major Indices of the World Stock Markets

Complex Systems: Solutions and Challenges in Economics, Management and Engineering

Time-dependent cross-correlation functions have been calculated between returns of the major indices of the world stock markets. One-, two-, and three-day shifts have been considered. Surprisingly high and persistent-in-time correlations have been found among some of the indices. Part of those correlations can attributed to the geographical factors, for instance, strong correlations between two major Japanese indices have been observed. The reason for other, somewhat exotic correlations, appear to be as much accidental as it is apparent. It seems that the observed correlations may be of practical value in the stock market speculations.

Interrelationships Among International Stock Market Indices: Europe, Asia and the Americas

International Journal of Theoretical and Applied Finance, 2005

In this paper, we investigate the price interdependence between seven international stock markets, namely Irish, UK, Portuguese, US, Brazilian, Japanese and Hong Kong, using a new testing method, based on the wavelet transform to reconstruct the data series, as suggested by Lee [11]. We find evidence of intra-European (Irish, UK and Portuguese) market co-movements with the US market also weakly influencing the Irish market. We also find co-movement between the US and Brazilian markets and similar intra-Asian co-movements (Japanese and Hong Kong). Finally, we conclude that the circle of impact is that of the European markets (Irish, UK and Portuguese) on both American markets (US and Brazilian), with these in turn impacting on the Asian markets (Japanese and Hong Kong) which in turn influence the European markets. In summary, we find evidence for intra-continental relationships and an increase in importance of international spillover effects since the mid 1990s, while the importance ...

Short-run and long-run dynamic linkages among international stock markets

International Review of Economics & Finance, 1996

This paper investigates the dynamic linkages among the U.S., Japan, U.K. and German stock market indices using daily data for the April 1, 1984 to May 31, 91 period. In contrast to previous studies, a vector error correction model of cointegrated variables as developed by Johansen (1988, 1991) and Johansen and Juselius (1990) is employed to examine both short-run and long-run intermarket relationships among these four stock markets. Significant evidence is found in support of both short-run and long-run relationships among these four stock market indices. The U.S. stock market leads other stock markets in short-run in the pre and post October 1987 crash, but leads all other markets in the long-run in all periods examined. The presence of a one long-run cointegrating equilibrium relationship among the four stock market indices implies a limited role of international diversification for investors with long holding periods. However, because the US-Japan-Germany stock market indices, and Japan-UK-Germany indices are not cointegrated with each other, these indices may yield international portfolio diversification in the long-run. Finally, the conflicting results from multivariate cointegration tests found in this study can not be used to provide conclusive evidence on international stock market efficiency.

Dynamics of correlations in the stock market

Empirical Science of Financial Fluctuations, 2002

Financial empirical correlation matrices of all the companies which both, the Deutsche Aktienindex (DAX) and the Dow Jones comprised during the time period 1990-1999 are studied using a time window of a limited, either 30 or 60, number of trading days. This allows a clear identification of the resulting correlations. On both these markets the decreases turn out to be always accompanied by a sizable separation of one strong collective eigenstate of the correlation matrix, while increases are more competitive and thus less collective. Generically, however, the remaining eigenstates of the correlation matrix are, on average, consistent with predictions of the random matrix theory. Effects connected with the world globalization are also discussed and a leading role of the Dow Jones is quantified. This effect is particularly spectacular during the last few years, and it turns out to be crucial to properly account for the time-zone delays in order to identify it.

International stock market linkages: Evidence from the pre- and post-October 1987 period

Journal of Banking & Finance, 1993

in the theory of cointegration to provide new methods of testing the linkage and dynamic interactions among stock market movements. Our findings are in sharp contrast with previous research which discovered strong interdependence among national stock markets prior to October 1987. For the post-October 1987 period. however, our results show that the degree of international co-movements among stock price indices has increased substantially,

Measures of globalization based on cross-correlations of world financial indices

Physica A: Statistical Mechanics and its Applications, 2001

The cross-correlation matrix of daily returns of stock market indices in a diverse set of 37 countries worldwide was analyzed. Comparison of the spectrum of this matrix with predictions of random matrix theory provides an empirical evidence of strong interactions between individual economies, as manifested by three largest eigenvalues and the corresponding set of stable, non-random eigenvectors. The observed correlation structure is robust with respect to changes in the time horizon of returns ranging from 1 to 10 trading days, and to replacing individual returns with just their signs. This last observation confirms that it is mostly correlations in signs and not absolute values of fluctuations, which are responsible for the observed effect. Correlations between different trading days seem to persist for up to 3 days before decaying to the level of the background noise.