Spatial Modeling of Stock Market Comovements

Posted: 12 Apr 2014

See all articles by Gema Fernandez-Aviles

Gema Fernandez-Aviles

University of Castilla-La Mancha

Jose-Maria Montero

University of Castilla-La Mancha - Faculty of Law and Social Sciences

Alexei G. Orlov

Securities and Exchange Commission

Date Written: 2012

Abstract

We model the complex global dependencies in international financial markets using spatial techniques. Our methodology allows us to go beyond conventional correlation analyses and volatility-spillover models confined to studying pairwise relationships, and improves the accuracy of return predictions. We find that stock market comovements are unrelated to geographical proximity, and that financial linkages, as measured by foreign direct investment (FDI) ties, are important in accounting for markets comovements. Our results suggest that the proposed measure of financial distance, coupled with spatial methodology, captures fairly accurately the dependencies in the world financial markets, providing important implications for policymaking and portfolio management.

Keywords: Stock markets comovements, Geostatistics, Variogram, Kriging

JEL Classification: G15, G17, C21, C40

Suggested Citation

Fernandez-Aviles, Gema and Montero, Jose-Maria and Orlov, Alexei G., Spatial Modeling of Stock Market Comovements (2012). Finance Research Letters, Vol. 9, No. 4, 2012, Available at SSRN: https://ssrn.com/abstract=2423577

Gema Fernandez-Aviles

University of Castilla-La Mancha ( email )

Ronda de Calatrava, 5
Ciudad Real, 13003
Spain

Jose-Maria Montero

University of Castilla-La Mancha - Faculty of Law and Social Sciences ( email )

Cobertizo de San Pedro Mártir s/n
Toledo, 45071
Spain

Alexei G. Orlov (Contact Author)

Securities and Exchange Commission ( email )

100 F Street NE
Washington, DC 20549
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
2,342
PlumX Metrics