Please use this identifier to cite or link to this item:
http://hdl.handle.net/10071/11255
Author(s): | Bentes, S. R. |
Date: | 2015 |
Title: | On the integration of financial markets: how strong is the evidence from five international stock markets? |
Volume: | 429 |
Pages: | 205 - 214 |
ISSN: | 0378-4371 |
DOI (Digital Object Identifier): | 10.1016/j.physa.2015.02.070 |
Keywords: | Market integration Law of one price Nonlinearity Vector error correction model |
Abstract: | This paper examines the integration of financial markets using data from five international stock markets in the context of globalization. The theoretical basis of this study relies on the price theory and the Law of One Price, which was adjusted to the framework of financial markets. When price levels are nonstationary, cointegration and the error correction model constitute a powerful tool for the empirical examination of market integration. The error correction model provides a fully dynamic framework that allows to separating the long and the short run effects of the integration process. A dataset encompassing the daily stock price series of the PSI 20 (Portugal), IBEX 35 (Spain), FTSE 100 (UK), NIKKEI 225 (Japan) and SP 500 (US) indices from January 4th 1999 to September 19th 2014 is employed. The results highlight that these five stock markets are linked together by just one longrun relationship, although short-run movements are also present, which causes distinct deviations from the long-run equilibrium relationship. Endogeneity prevails in the system as a whole. While market integration in the sense of the Law of One Price holds, pairwise full price transmission has limited evidence. The results therefore show that stock market price movements are highly nonlinear and complex. |
Peerreviewed: | yes |
Access type: | Embargoed Access |
Appears in Collections: | BRU-RI - Artigos em revistas científicas internacionais com arbitragem científica |
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Sonia_Bentes_Physica_A_429.pdf Restricted Access | Versão Editora | 505,02 kB | Adobe PDF | View/Open Request a copy |
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