Long-Term Trends and Short-Run Dynamics in International Stock Markets.

European Research Studies Journal, Vol. 4, pp. 31-49, 2001

Posted: 30 Mar 2005

See all articles by Sotiris K. Staikouras

Sotiris K. Staikouras

City University - Cass Business School; ALBA Graduate Business School

Spyros Mesomeris

Deutsche Bank AG (London)

Haris Harissis

Independent

Abstract

The objective of the present study is to examine the behaviour and interaction of international stock markets. The validity of an earnings based valuation model is assessed using data from seventeen developed countries around the world over the last sixteen years. The estimation process employed involves a two-step Engel-Granger procedure where cointegrating relationships between market indices and their fundamentals are analysed. Cointegration appears mainly in large markets, while the presence of an error correction representation implies the existence of the reversion force towards the fair value obtained from the cointegrating regression. Further, the error correction model, enriched with other variables identified in previous research, seems to capture the short-run dynamics quite well. The coefficients of the variables in both the cointegrating regression and the error correction representation have the correct signs and are consistent in size. Granger causality tests do not particularly support the hypothesis that smaller markets are being influenced by external factors, since causality seems to run both from large to small markets and vice versa.

Keywords: International markets, Market indices, Cointegration, Error correction model, Short-run dynamics, Causality

JEL Classification: C22, C52, G15

Suggested Citation

Staikouras, Sotiris and Mesomeris, Spyros and Harissis, Haris, Long-Term Trends and Short-Run Dynamics in International Stock Markets.. European Research Studies Journal, Vol. 4, pp. 31-49, 2001. Available at SSRN: https://ssrn.com/abstract=679439

Sotiris Staikouras (Contact Author)

City University - Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

ALBA Graduate Business School ( email )

Athinas Ave. & 2A Areos Str.
Vouliagmeni 166 71, Athens
Greece

Spyros Mesomeris

Deutsche Bank AG (London) ( email )

Winchester House
1 Great Winchester Street
London, EC2N 2DB
United Kingdom

Haris Harissis

Independent ( email )

No Address Available
United States

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