The Rise in Comovement Across National Stock Markets Market Integration or Global Bubble?

24 Pages Posted: 31 Jan 2006

See all articles by Robin Brooks

Robin Brooks

International Monetary Fund (IMF) - Financial Studies Division

Marco Del Negro

Federal Reserve Bank of New York

Date Written: September 2002

Abstract

The degree of comovement across national stock markets has increased dramatically since the mid-1990s. This has overturned a stylized fact in the international portfolio diversification literature that diversifying across countries is more effective for risk reduction than diversifying across industries. We investigate if this rise in comovement is a permanent phenomenon driven by greater economic and financial integration, or a temporary effect associated with the recent stock market bubble. At the global level, our results point to the bubble. At a regional level, we find evidence of a significant rise in market integration within Europe, possibly a reflection of institutional changes such as the EMU.

Keywords: Diversification, risk, international financial markets, industrial structure

JEL Classification: G11, G15

Suggested Citation

Brooks, Robin and Del Negro, Marco, The Rise in Comovement Across National Stock Markets Market Integration or Global Bubble? (September 2002). IMF Working Paper No. 02/147, Available at SSRN: https://ssrn.com/abstract=879954

Robin Brooks (Contact Author)

International Monetary Fund (IMF) - Financial Studies Division ( email )

700 19th Street N.W.
Washington, DC 20431
United States

Marco Del Negro

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

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