Major World Stock Research Articles

Stock Markets Integration: Examining Linkages between Selected World Markets

In recent years, globalisation, economic assimilation and integration among countries and their financial markets have increased interdependency among major world stock markets. This increased interdependency among the worldwide stock markets may have impacts on the global investors for their assets allocation decision and on the economic policies of economies for ensuring economic stability. Hence, there is a need to study the extent of integration among the world stock markets which is the objective of this paper. It examines the relationships between the selected Asian and the US stock markets over a period, 19/10/1999 to 25/04/2008, using daily closing data of twelve stock markets. Results of the present study show that stock markets under study are integrated. The degree of correlation between the markets, but Japan, varies between moderate to very high. Furthermore, it provided that no stock market is playing a very dominant role in influencing other markets. The US influence is not noticeable as in the earlier researches. It is expected that the results will be useful for the global investors in managing their international portfolios.

Time-varying inter-market linkage of international stock markets

As a response to the growing concern on the interconnection of international stock markets, this study uses the Peña–Box model to capture time-varying relationship of the returns of 13 stock indices during 1993–2002. The results indicate a dynamic relationship of world major stock markets over time, which provide new but supplemental evidence on the conclusion derived from the conventional confirmatory factor analyses in literature.

Profitability of intraday and interday momentum strategies

In this article, we examine whether a day's surge or plummet in stock price serve as a market entry or exit signal. Returns of five trading rules based on 1-day and intraday momentum are estimated for major world stock indices. It is found that the trading rules perform well in the Asian indices but not in those of Europe and the United States.

Do Cross-Listings Drive Regulatory Convergence? Evidence from Germany

We analyse the cross listing behavior of German firms on the world's major stock exchanges. We find that only a very small minority of firms with capital market orientation cross list. The U.S. and Switzerland are the most popular locations. Taking into account the type of listing in the U.S., we find no evidence for traditional economic motives of cross listings: Firms do not position themselves to raise funds, to lower their cost of capital by shareholder diversification or to reduce agency costs by opting into a more stringent regulation. The economic motives for convergence of stock market regulation seem thin. Cross listing behavior is therefore unlikely to have an impact on the future shape of the stock exchanges.

Co-movements of sector index returns in the world's major stock markets in bull and bear markets: Portfolio diversification implications

In this paper, principal components analysis and Granger causality tests are used to study the portfolio diversification implications of the co-movements of sector indexes in the US, UK, German, French, and Japanese stock markets in bull and bear markets. We find that, in a bull market, investors can obtain more benefit with global diversification than with domestic diversification even if they invest in the same sector in different countries as opposed to investing in different sectors within the same country. In a bear market, the sectors of different countries tend to be more closely correlated and country diversification opportunities are limited.

MODELING THE VOLATILITY AND EXPECTED VALUE OF A DIVERSIFIED WORLD INDEX

This paper considers a diversified world stock index in a continuous financial market with the growth optimal portfolio (GOP) as reference unit or benchmark. Diversified broadly based indices and portfolios, which include major world stock market indices, are shown to approximate the GOP. It is demonstrated that a key financial quantity is the trend of a world index. It turns out that it can be directly observed since the expected increments of the index equal four times those of the quadratic variation of its square root. Using a world stock index as approximation of the discounted GOP it is shown that, in reality, the trend of the discounted GOP does not vary greatly in the long term. This leads for a diversified world index to a natural model, where the index is a transformed square root process of dimension four. The squared index volatility appears then as the inverse of the square root process. This feature explains most of the properties of an index and its volatility.

The Halloween Effect and Japanese Equity Prices: Myth or Exploitable Anomaly

Bouman and Jacobsen (American Economic Review92(5), 1618–1635, 2002) examine monthly stock returns for major world stock markets and conclude that returns are significantly lower during the May–October periods versus the November–April periods in 36 of 37 markets examined. They argue that, in general, the Halloween strategy outperforms the buy and hold strategy thereby casting doubt on the validity of the efficient market paradigm. More recently, Maberly and Pierce (Econ Journal Watch1(1), 29–46, 2004) re-examine the evidence for U.S. equity prices and conclude that Bouman and Jacobsen’s results are not robust to alternative model specifications. Extending prior research, this paper examines the robustness of the Halloween strategy to alternative model specifications for Japanese equity prices. The Halloween effect is concentrated in the period prior to the introduction of Nikkei 225 index futures in September 1986. After the internationalization of Japanese financial markets in the mid-1980s, the Halloween effect disappears.

Endogenous versus Exogenous Crashes in Financial Markets

In a series of papers based on analogies with statistical physics models, we have proposed that most financial crashes are the climax of so-called log-periodic power law signatures (LPPS) associated with speculative bubbles. In addition, a large body of empirical evidence supporting this proposition have been presented Along a complementary line of research, we have established that, while the vast majority of drawdowns occurring on the major financial markets have a distribution which is well-described by a stretched exponential, the largest drawdowns are occurring with a significantly larger rate than predicted by extrapolating the bulk of the distribution and should thus be considered as outliers. Here, these two lines of research are merged in a systematic way to offer a classification of crashes as either events of an endogenous origin associated with preceding speculative bubbles or as events of an exogenous origin associated with the markets response to external shocks. We first perform an extended analysis of the distribution of drawdowns in the two leading exchange markets (US dollar against the Deutsmark and against the Yen), in the major world stock markets, in the U.S. and Japanese bond market and in the gold market, by introducing the concept of coarse-grained drawdowns, which allows for a certain degree of fuzziness in the definition of cumulative losses and improves on the statistics of our previous results. Then, for each identified outlier, we check whether LPPS are present and take the existence of LPPS as the qualifying signature for an endogenous crash: this is because a drawdown outlier is seen as the end of a speculative unsustainable accelerating bubble generated endogenously. In the absence of LPPS, we are able to identify what seems to have been the relevant historical event, i.e., a new piece of information of such magnitude and impact that it is seems reasonable to attribute the crash to it, in agreement with the standard view of the efficient market hypothesis. Such drawdown outliers are classified as having an exogenous origin. Globally over all the markets analyzed, we identify 49 outliers, of which 25 are classified as endogenous, 22 as exogenous and 2 as associated with the Japanese anti-bubble. Restricting to the world market indices, we find 31 outliers, of which 19 are endogenous, 10 are exogenous and 2 are associated with the Japanese anti-bubble. The combination of the two proposed detection techniques, one for drawdown outliers and the second for LPPS, provides a novel and systematic taxonomy of crashes further substantiating the importance of LPPS.

Integration of Indian Capital Markets with Global Markets: An Empirical Study

From 1997 onwards, the effect of globalization is becoming evident in the Indian capital markets. The stock prices of Indian companies and the stock market indices have been driven not just by the macro and micro factors of the Indian economy. Events in other parts of the world have also increasingly started having an impact. This is in stark contrast to the situation in the insular days prior to 1991, when major policy changes were made by the Indian government to open up the economy. The increased volatility of stock markets and reduction in controls over capital movements across borders has reflected in the stock prices in India. This paper aims at validating that indeed globalization has found its way into the Indian capital markets. It estimates the extent of correlation between the major world stock markets in USA, UK, Japan and Hong Kong with the Indian Stock Market Index like the BSE Sensex and also how portfolio fund flows have affected its movement. The study restricts itself to the period between January 1997 and June 2000. In brief, this paper seeks to: establish the relationship between the Bombay 30 Stock Sensitivity Index (SENSEX) and the global indices mentioned above like Dow Jones Industrial Average, NASDAQ Composite of USA, FTSE100 of UK, Nikkei 225 of Japan and the Hang Seng of Hong Kong. look at how portfolio funds flows have been affecting the Indian stock market.

Risk and Return in the World's Major Stock Markets

The Sharpe and Treynor indexes measure portfolio return performance in terms of only one risk characteristic, although several risk characteristics of the investment may be important for the investor. Data envelopment analysis (DEA), a new operations research technique, makes it possible to measure investment return performance in terms of a group of various risk characteristics that may be equally important for the investor. The authors use six different risk measures to compare the return performances of the world9s 16 major stock markets during the 1988–1997 and 1995–1997 periods. The U.S. stock market had the best return performance in terms of systematic risk, return volatility, market capitalization, and book value/market equity individual risk characteristics in both periods. The U.S., Dutch, German, and Swiss stock markets had the best overall return performance in terms of all six risk characteristics in both periods. The U.K. stock market had one of the best overall return performances in terms of all six risk characteristics in the 1995-1997 period.

Testing densities with financial data: an empirical comparison of the EdgeworthSargan density to the Students t

The Edgeworth—Sargan density has been shown capable of capturing salient empirical regularities of financial data in some studies. The main purpose of the reported study is to compare its performance with other densities, most notably to the Student t. Both densities can account for thick tails, and asymmetry One important by product of the comparison is to test the existence of moments. The comparison of densities is carried out with daily financial observations, spanning 25 years of data from two major world stock markets. Attention is paid to the fitting of other empirical regularities, and especially to the peak, frequently found at the middle of the densities.

Evidence of Psychological Barriers in the Conditional Moments of Major World Stock Indices

Evidence of Psychological Barriers in the Conditional Moments of Major World Stock Indices

Evidence of psychological barriers in the conditional moments of major world stock indices

AbstractThis study investigates the existence of psychological barriers in the Dow Jones Industrial Average, the S&P 500, and six foreign stock indices. It is believed by many in the investment community that index levels that are multiples of 100 serve as barriers, and that markets may resist crossing these barriers. Although return dynamics in the neighborhood of barrier points are not identical for all series studied, we find aberrations in the conditional means and variances consistent with psychological barriers. In five of the eight indices studied, conditional mean returns are significantly higher after crossing a barrier as part of an upward move, while only two series exhibit significant mean effects after crossing a barrier as part of a downward move. In seven of the eight series studied, we find significant conditional variance effects coincident with a barrier crossing. In addition, most series exhibit evidence of autoregressive conditional heteroskedastic (ARCH), generalized ARCH (GARCH), and leverage effects.

Common Stochastic Trends and Predictability of International Stock Prices

This paper investigates comovements and predictability of aggregate stock prices in Japan, Germany, the United Kingdom and the United States for the period from January 1975 to December 1990. The paper finds that the unit root nonstationary stock prices in the four countries are cointegrated with a single cointegrating vector, and share a long-run equilibrium relationship. Since each national stock price series contains information on the common stochastic trends, the predictability of one country′s stock prices can be enhanced significantly by utilizing information on other countries′ stock prices and on world common stochastic trends. It is found that U.S. stock prices contain substantial information on future movements of other countries′ stock prices. The subsample estimation results provide evidence of increasing comovements of stock prices and of the increasing importance of U.S. and Japanese stock prices in the major world stock markets during the 1980s. J. Japan. Int. Econ., September 1995, 9(3), pp.245–277. Carlson School of Management, University of Minnesota, Minneapolis, MN 55455; and Department of Economics, Drexel University, Philadelphia, Pennsylvania 19104

A system of stock prices in world stock exchanges: Common stochastic trends for 1975–1990

This article reports an investigation of the behavior of stock prices in major world stock exchanges based on univariate and multivariate approaches. The evidence shows that each series of stock prices in the New York, London, Tokyo, and Frankfurt stock exchanges during the period from January 1975 through March 1990 has a unit root. The multivariate tests for unit roots, however, show that there are three unit roots in a system of stock prices in the world's four largest stock exchanges, suggesting the existance of a common stochastic trend in the system. The subsample estimation results are consistent with greater globalization of world stock markets during the 1980s.

Inter-temporal Stability of the International Stock Market Relationships: The Case of Malaysian Stock Market in Relation to World's Major Stock Markets

Most of the past studies regarding the co-movements of the international stock markets dealt WIth the potential gains to investors from international portfolio diversification. In general,these studies suggested that considerable gains were available to those investors willing to diversify internationally due to usually low positive or negative correlations between national stock markets (i.e., the unsystematic risk is reduced). Emphasis was not given to the possibility of using the movement in one market to predict the movement in another. This study, on the other hand, found that the information of the past movements in one market (referring to world's major markets) is not useful in predicting the movement in another market (referring to the Malaysian market) as shown by generally insignificant lagged correlations. Furthermore, inter-temporal instability of the correlations over time makes it difficult to select an efficient investment strategy due to a continuously changing efficient frontier. ABSTRAK Kebanyakan kajian yang lepas mengenai pergerakan bersama pasaran saham antarabangsa bertumpu kepada kemungkinan mendapat untung hasil daripada pempelbagaian portfolio antarabangsa. Secara amnya, kajian-kajian ini mencadangkan bahawa keuntungan boleh didapati bagi mereka yang sanggup mempelbagaikan portfolio secara antarabangsa disebabkan nilai korelasi yang selalunya rendah ataupun negatif di antara bursa-bursa saham ini (yakni, risiko tidak sistematik dikurangkan). Tumpuan tidak diberikan terhadap penggunaall pergerakan saham suatu bursa untuk meramalkan pergerakan saham di bursa saham yang lain. Kajian yang dilakukan ini, sebaliknya, mendapati bahawa pergerakan saham di satu bursa (merujuk kepada bursa-bursa utama ,dunia) tidak boleh digunakan untuk membuat ramalan tentang pergerakan saham pada bursa yang lain (merujuk kepada bursa saham Malaysia) sebagaimana yang ditunjukkan oleh nilai korelasi berlat yang rata-rata tidak ketara. Di samping itu, ketidakstabilan korelasi daripada satu tempoh masa kepada satu tempoh masa yang lain menjadikan satu keadaan yang sukar untuk pemilihan strategi pelaburan yang efisien disebabkan perubahan pada sempadan efisien yang berlaku secara berterusan.

Savings, Personal Wealth and Risk

In this Briefing Paper we examine the underlying determinants of personal savings behaviour to substantiate our view that the recent fall in savings rates does not imply that it must in future bounce back to some more normal level. On the contrary there are good reasons for believing that savings are more likely to go on falling than to rise.We argue that consumer behaviour should be related explicitly to personal wealth as well as to disposable income. Personal wealth has risen substantially since 1982: the fall in inflation and long‐term interest rates has pushed up gilts' prices; the recovery of profits has sparked off a stock market boom; and the value of the housing stock, which is by far the most important asset held by the personal sector, has started to rise again in real terms. This rise in asset values means that, despite a rise in consumption financed by borrowing, the personal sector balance sheet still in a healthy state, particularly when account is taken of the personal savings now held indirectly via pension funds. These have risen rapidly recently, reducing the need for other long‐term savings.The rise in total wealth has increased savers' tolerance of a fall in net liquid assets (bank and building society deposits etc less borrowing). The willingness to hold a smaller (precautionary) stock of net liquid assets may also reflect a perceived reduction in risk. Financial markets have been much more stable over the period since 1975 than over the preceding eight years, and may now be signalling that the period of adjustment to the shocks and disturbances of the 1970s is drawing to an end. The fall in savings is a worldwide phenomenon. As in the UK it is linked to the fall in inflation and may also be connected with the recovery of the world's major stock markets.

An Analysis of the Interrelationships Among the Major World Stock Exchanges

The method of principal component is used in this paper to analyse the interrelationship among the world's major stock exchanges. The major finding is that the interrelationship is unstable over time. This finding proves that any ex ante prediction of price indices is impossible, and it suggests that the indices of world equity markets can move in a random walk fashion. The consequences to international portfolio diversification should be obvious.