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CO‐MOVEMENTS IN INTERNATIONAL EQUITY MARKETS

CO‐MOVEMENTS IN INTERNATIONAL EQUITY MARKETS We examine the co‐movements of equity returns in four major international markets by characterizing the time‐varying cross‐country covariances and correlations. Using a generalized positive definite multivariate GARCH model, we find that the Japanese and U.S. stock markets have significant transitory covariance, but zero permanent covariance. The other pairs of markets examined display significant permanent and transitory covariance. We also find that, while conditional correlations between returns are generally small, they change considerably over time. An event analysis suggests that basing diversification strategies on these conditional correlations is potentially beneficial. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Financial Research Wiley

CO‐MOVEMENTS IN INTERNATIONAL EQUITY MARKETS

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References (13)

Publisher
Wiley
Copyright
© The Southern Finance Association and the Southwestern Finance Association
ISSN
0270-2592
eISSN
1475-6803
DOI
10.1111/j.1475-6803.1997.tb00251.x
Publisher site
See Article on Publisher Site

Abstract

We examine the co‐movements of equity returns in four major international markets by characterizing the time‐varying cross‐country covariances and correlations. Using a generalized positive definite multivariate GARCH model, we find that the Japanese and U.S. stock markets have significant transitory covariance, but zero permanent covariance. The other pairs of markets examined display significant permanent and transitory covariance. We also find that, while conditional correlations between returns are generally small, they change considerably over time. An event analysis suggests that basing diversification strategies on these conditional correlations is potentially beneficial.

Journal

The Journal of Financial Research – Wiley

Published: Sep 1, 1997

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