Global Market Integration: An Alternative Measure and its Application

Posted: 21 Mar 2008 Last revised: 18 Nov 2011

See all articles by Kuntara Pukthuanthong

Kuntara Pukthuanthong

University of Missouri, Columbia

Richard Roll

California Institute of Technology

Date Written: January 10, 2009


Many previous studies of international markets have attempted to measure integration by correlations among broad stock market indexes. Yet such correlations have been found to poorly mimic other measures of integration. We show that a simple correlation between two stock markets is likely to be a poor indicator of integration for a very simple reason: when there are multiple factors driving returns, such as global macro factors or even industry factors, two markets can be perfectly integrated and yet still be imperfectly correlated. Perfect integration implies that the same international factors explain 100% of the broad index returns in both countries, but if the countries differ in their sensitivities to these factors, they will not exhibit perfect correlation. We derive a new integration measure based on the explanatory power of a multi-factor model and use it empirically to investigate recent trends in global integration. For most countries, there has been a marked increase in measured integration, but this is not indicated by simple correlations among countries.

Keywords: global, integration, market

JEL Classification: F02, F30

Suggested Citation

Pukthuanthong, Kuntara and Roll, Richard W., Global Market Integration: An Alternative Measure and its Application (January 10, 2009). AFA 2009 San Francisco Meetings Paper , Journal of Financial Economics (JFE), Vol. 94, No. 2, 2009, Available at SSRN:

Kuntara Pukthuanthong

University of Missouri, Columbia ( email )

Robert J. Trulaske, Sr. College of Business
403 Cornell Hall
Columbia, MO 65211
United States
6198076124 (Phone)

HOME PAGE: http://

Richard W. Roll (Contact Author)

California Institute of Technology ( email )

1200 East California Blvd
Mail Code: 228-77
Pasadena, CA 91125
United States
626-395-3890 (Phone)
310-836-3532 (Fax)

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