Country and Industry Convergence of Equity Markets: International Evidence from Club Convergence and Clustering

North American Journal of Economics and Finance, July 2014

37 Pages Posted: 24 Dec 2010 Last revised: 18 Mar 2015

See all articles by Nicholas Apergis

Nicholas Apergis

University of Piraeus; University of Derby

Christina Christou

University of Piraeus - Department of Banking and Financial Management

Stephen M. Miller

University of Nevada, Las Vegas - Department of Economics; University of Connecticut - Department of Economics

Date Written: December 17, 2010

Abstract

This study employs the panel convergence methodology developed by Phillips and Sul (2007) to explore the convergence dynamics of international equity markets. The analysis considers both country and industry effects. While traditional portfolio management strategies usually follow a top-down procedure, assuming that country-level effects drive financial aggregates, e.g. stock returns, our empirical results suggest that the equity markets of 35 of the 42 counties in our sample do form a unified convergence club. The empirical findings also show more numerous stock-price convergence clubs in certain industries. That is, industry factors play a more important role in explaining the actual divergence in stock prices than does the stock market itself. Conversely, the volatility of stock prices exhibits much more evidence of convergence than stock prices. These findings should assist portfolio managers in the design and implementation of appropriate portfolio management strategies. Regulatory authorities also can benefit in the design of financial regulation.

Keywords: equity markets convergence, industry effects, international equity markets, panel convergence methodology

JEL Classification: C32, C33

Suggested Citation

Apergis, Nicholas and Christou, Christina and Miller, Stephen M., Country and Industry Convergence of Equity Markets: International Evidence from Club Convergence and Clustering (December 17, 2010). North American Journal of Economics and Finance, July 2014. Available at SSRN: https://ssrn.com/abstract=1730779 or http://dx.doi.org/10.2139/ssrn.1730779

Nicholas Apergis

University of Piraeus ( email )

Karaoli and Dimitriou 80
80 KARAOLI & DIMITRIOU STREET
Piraeus, Attiki 18534
Greece

University of Derby ( email )

Kedleston Road
Derby, Derbyshire DE22 1GB
United Kingdom

Christina Christou

University of Piraeus - Department of Banking and Financial Management

80 Karaoli & Dimitriou Str.
18534 Piraeus, 185 34 -GR
Greece

Stephen M. Miller (Contact Author)

University of Nevada, Las Vegas - Department of Economics ( email )

4505 S. Maryland Parkway
Box 456005
Las Vegas, NV 89154
United States
702-895-3776 (Phone)
702-895-1354 (Fax)

HOME PAGE: http://faculty.unlv.edu/smiller/

University of Connecticut - Department of Economics

365 Fairfield Way, U-1063
Storrs, CT 06269-1063
United States

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