Linkages between the US and European Stock Markets: A Fractional Cointegration Approach

26 Pages Posted: 20 Mar 2015

See all articles by Guglielmo Maria Caporale

Guglielmo Maria Caporale

Brunel University London - Department of Economics and Finance; London South Bank University; CESifo (Center for Economic Studies and Ifo Institute); German Institute for Economic Research (DIW Berlin)

Luis A. Gil-Alana

University of Navarra - Department of Economics

C. Orlando

University of Navarra - School of Economics

Multiple version iconThere are 3 versions of this paper

Date Written: January 20, 2015

Abstract

This paper analyses the long-memory properties of US and European stock indices, as well as their linkages, using fractional integration and fractional cointegration techniques. The empirical evidence suggests the presence of unit roots in both the S&P 500 Index and the Euro Stoxx 50 Index, and also that cointegration only holds over the subsample ending in March 2009, i.e. when the global financial crisis was still severe; subsequently, the US and European stock markets diverged and followed different recovery paths, possibly as a result of various factors such as diverging growth and monetary policy.

Keywords: Stock markets, linkages, fractional integration, fractional cointegration

JEL Classification: C32, G15

Suggested Citation

Caporale, Guglielmo Maria and Gil-Alana, Luis A. and Orlando, Christopher, Linkages between the US and European Stock Markets: A Fractional Cointegration Approach (January 20, 2015). Available at SSRN: https://ssrn.com/abstract=2580226 or http://dx.doi.org/10.2139/ssrn.2580226

Guglielmo Maria Caporale (Contact Author)

Brunel University London - Department of Economics and Finance ( email )

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HOME PAGE: http://www.brunel.ac.uk/about/acad/bbs/bbsstaff/ef_staff/guglielmocaporale/

London South Bank University ( email )

Centre for Monetary and Financial Economics
London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Luis A. Gil-Alana

University of Navarra - Department of Economics ( email )

Campus de Arrosadia
Pamplona, 31006
Spain

Christopher Orlando

University of Navarra - School of Economics ( email )

Universidad de Navarra
Campus Universitario
Pamplona, 31009
Spain

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