Comovement in International Equity Markets: A Sectoral View

28 Pages Posted: 9 Nov 2003

See all articles by W. Jos Jansen

W. Jos Jansen

De Nederlandsche Bank

Robert-Paul Berben

De Nederlandsche Bank - Monetary and Economic Policy Department

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Date Written: October 2003

Abstract

We investigate shifts in correlation patterns among international equity returns at the market level as well as the industry level. We develop a novel bivariate GARCH model for equity returns with a smoothly time-varying correlation and then derive a Lagrange Multiplier statistic to test the constant-correlation hypothesis directly. Applying the test to weekly data from Germany, Japan, the UK and the US in the period 1980-2000, we find that correlations among the German, UK and US stock markets have doubled, whereas Japanese correlations have remained the same. Both dates of change and speeds of adjustment vary widely across countries and sectors.

Keywords: stock market linkages, financial integratiom, smooth transition, spillovers

JEL Classification: C22, G15

Suggested Citation

Jansen, W. Jos and Berben, Robert-Paul, Comovement in International Equity Markets: A Sectoral View (October 2003). Available at SSRN: https://ssrn.com/abstract=457961 or http://dx.doi.org/10.2139/ssrn.457961

W. Jos Jansen (Contact Author)

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
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+31205243738 (Phone)

Robert-Paul Berben

De Nederlandsche Bank - Monetary and Economic Policy Department ( email )

Westeinde 1
P.O. Box 98
1017 ZN Amsterdam
Netherlands

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