Returns Synchronization and Daily Correlation Dynamics between International Stock Markets

Lancaster University, Accounting & Finance Department Working Paper No. 99/011

34 Pages Posted: 21 Oct 1999

See all articles by Martin Martens

Martin Martens

Erasmus University Rotterdam (EUR); Robeco Asset Management

Ser-Huang Poon

University of Manchester - Manchester Business School

Date Written: October 13, 1999

Abstract

The use of close-to-close returns underestimates returns correlation because international stock markets have different trading hours. With the availability of 16:00 (London time) stock market series, we find dynamics of daily correlation and daily covariance, estimated using two non-synchroneity adjustment procedures, to be substantially different from their synchronous counterparts. We find volatility spillovers from the US to the UK and France, and there is also evidence of reverse spillovers which is not documented before. Daily covariance increases during volatile periods. But, unlike previous findings, the increase in daily correlation is prominent only under extremely adverse conditions when a large negative return has been registered.

JEL Classification: C4, G1

Suggested Citation

Martens, Martin P.E. and Poon, Ser-Huang, Returns Synchronization and Daily Correlation Dynamics between International Stock Markets (October 13, 1999). Lancaster University, Accounting & Finance Department Working Paper No. 99/011. Available at SSRN: https://ssrn.com/abstract=180391 or http://dx.doi.org/10.2139/ssrn.180391

Martin P.E. Martens

Erasmus University Rotterdam (EUR) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands
+31 10 408 1253 (Phone)
+31 10 408 9162 (Fax)

Robeco Asset Management ( email )

Rotterdam, 3011 AG
Netherlands

Ser-Huang Poon (Contact Author)

University of Manchester - Manchester Business School ( email )

Crawford House
Oxford Road
Manchester, Manchester M13 9PL
United Kingdom
+44 161 275 4031 (Phone)
+44 161 275 4023 (Fax)

HOME PAGE: http://www.manchester.ac.uk/research/Ser-huang.poon/

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