IDEAS home Printed from https://ideas.repec.org/a/aio/fpvfcf/v1y2010i12p44-53.html
   My bibliography  Save this article

The integration of capital markets: correlation analysis

Author

Listed:
  • Ioan TRENCA
  • Eva DEZSI

    (Babes-Bolyai University Cluj-Napoca)

Abstract

The financial theory predicts that gains can be achieved through international portfolio diversification, if the different markets are not correlated. As we can see the level of interaction or independence between markets has an important impact of the investments, in means of risk and return. International portfolio diversification can lead to efficient asset allocation and reduce risk, assets associated with similar levels of risk are anticipated to have similar levels of return in integrated markets. But, if these markets are driven by a common shock, for example the present financial crisis, this will have an immediate effect on them. This paper examines the short term relationships between the biggest stock exchanges in the world, and also the dynamics of these market integrations. Unconditional correlation estimates and mobile correlations are first employed; the next step in the analysis is to test each index series for the presence of unit roots, which shows whether the series are nonstationary. Nonstationarity is a precondition for cointegration, additionally all the series must be integrated in the same order. For this I apply the ADF, PP and the KPSS test. Once the stationarity requirements are met the Granger, Johansen and Pedroni tests are used to determine whether the time series are cointegrated.

Suggested Citation

  • Ioan TRENCA & Eva DEZSI, 2010. "The integration of capital markets: correlation analysis," Finante - provocarile viitorului (Finance - Challenges of the Future), University of Craiova, Faculty of Economics and Business Administration, vol. 1(12), pages 44-53, December.
    • Handle: RePEc:aio:fpvfcf:v:1:y:2010:i:12:p:44-53
    as

    Download full text from publisher

    File URL: http://feaa.ucv.ro/FPV/012-06.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Peter Pedroni, 1999. "Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(S1), pages 653-670, November.
    2. Schotman, Peter C. & Zalewska, Anna, 2006. "Non-synchronous trading and testing for market integration in Central European emerging markets," Journal of Empirical Finance, Elsevier, vol. 13(4-5), pages 462-494, October.
    3. Schotman, Peter C & Zalewska, Ania, 2005. "Non-synchronous Trading and Testing for Market Integration in Central European Emerging Markets," CEPR Discussion Papers 5352, C.E.P.R. Discussion Papers.
    4. Manolis Syllignakis & Georgios Kouretas, 2006. "Long And Short-Run Linkages In Cee Stock Markets: Implications For Portfolio Diversification And Stock Market Integration," William Davidson Institute Working Papers Series wp832, William Davidson Institute at the University of Michigan.
    5. repec:bla:obuest:v:61:y:1999:i:0:p:653-70 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Abida Hafeez & Karim Bux Shah Syed & Fiza Qureshi, 2019. "Exploring the Relationship between Government R & D Expenditures and Economic Growth in a Global Perspective: A PMG Estimation Approach," International Business Research, Canadian Center of Science and Education, vol. 12(4), pages 163-174, April.
    2. Ranjan Aneja & Umer J. Banday & Tanzeem Hasnat & Mustafa Koçoglu, 2017. "Renewable and Non-renewable Energy Consumption and Economic Growth: Empirical Evidence from Panel Error Correction Model," Jindal Journal of Business Research, , vol. 6(1), pages 76-85, June.
    3. Vassilis Monastiriotis & Cigdem Borke Tunali, 2020. "The Sustainability of External Imbalances in the European Periphery," Open Economies Review, Springer, vol. 31(2), pages 273-294, April.
    4. Ziesemer, Thomas H.W., 2010. "The impact of the credit crisis on poor developing countries: Growth, worker remittances, accumulation and migration," Economic Modelling, Elsevier, vol. 27(5), pages 1230-1245, September.
    5. Neil A. Wilmot & Ariuna Taivan, 2021. "Examining the Impact of Financial Development on Energy Production in Emerging Economies," JRFM, MDPI, vol. 14(2), pages 1-17, February.
    6. Raffaello Bronzini & Paolo Piselli, 2006. "Determinants of long-run regional productivity: the role of R&D, human capital and public infrastructure," Temi di discussione (Economic working papers) 597, Bank of Italy, Economic Research and International Relations Area.
    7. Al-mulali, Usama & Fereidouni, Hassan Gholipour & Lee, Janice Y.M., 2014. "Electricity consumption from renewable and non-renewable sources and economic growth: Evidence from Latin American countries," Renewable and Sustainable Energy Reviews, Elsevier, vol. 30(C), pages 290-298.
    8. Song, Tao & Zheng, Tingguo & Tong, Lianjun, 2008. "An empirical test of the environmental Kuznets curve in China: A panel cointegration approach," China Economic Review, Elsevier, vol. 19(3), pages 381-392, September.
    9. Francesca Iorio & Stefano Fachin, 2014. "Savings and investments in the OECD: a panel cointegration study with a new bootstrap test," Empirical Economics, Springer, vol. 46(4), pages 1271-1300, June.
    10. Ayad Hicham, 2017. "Financial Development and Poverty Reduction Nexus: A Co-Integration and Causality Analysis in Selected Arabic Countries," Academic Journal of Economic Studies, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 3(2), pages 28-35, June.
    11. Iheonu O Chimere & Tochukwu Nwachukwu, 2020. "Macroeconomic determinants of household consumption in selected West African countries," Economics Bulletin, AccessEcon, vol. 40(2), pages 1596-1606.
    12. Marius-Răzvan Surugiu & Cristina-Raluca Mazilescu & Camelia Surugiu, 2021. "Analysis of the Tax Compliance in the EU: VECM and SEM," Mathematics, MDPI, vol. 9(17), pages 1-19, September.
    13. Kyoji Fukao & Cristiano Perugini, 2021. "The Long‐Run Dynamics of the Labor Share in Japan," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 67(2), pages 445-480, June.
    14. Apergis, Nicholas & Payne, James E., 2010. "Energy consumption and growth in South America: Evidence from a panel error correction model," Energy Economics, Elsevier, vol. 32(6), pages 1421-1426, November.
    15. Herzer Dierk, 2022. "Semi-endogenous Versus Schumpeterian Growth Models: A Critical Review of the Literature and New Evidence," Review of Economics, De Gruyter, vol. 73(1), pages 1-55, April.
    16. Aziza Syzdykova & Gulmira Azretbergenova, 2024. "Asymmetric Effect of Oil Prices on Kazakhstan’s Stock Market Index and Exchange Rate," International Journal of Energy Economics and Policy, Econjournals, vol. 14(6), pages 15-23, November.
    17. Bangake, Chrysost & Eggoh, Jude C., 2011. "Further evidence on finance-growth causality: A panel data analysis," Economic Systems, Elsevier, vol. 35(2), pages 176-188, June.
    18. José Abraham López Machuca & Jorge Eduardo Mendoza Cota, 2017. "Salarios, desempleo y productividad laboral en la industria manufacturera mexicana. (Wage, Unemployment and Labor Productivity in the Mexican Manufacturing Industry)," Ensayos Revista de Economia, Universidad Autonoma de Nuevo Leon, Facultad de Economia, vol. 0(2), pages 185-228, October.
    19. Apergis, Nicholas & Payne, James E., 2010. "Coal consumption and economic growth: Evidence from a panel of OECD countries," Energy Policy, Elsevier, vol. 38(3), pages 1353-1359, March.
    20. Tongurai, Jittima & Vithessonthi, Chaiporn, 2018. "The impact of the banking sector on economic structure and growth," International Review of Financial Analysis, Elsevier, vol. 56(C), pages 193-207.

    More about this item

    Keywords

    capital markets integration; correlation analysis;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aio:fpvfcf:v:1:y:2010:i:12:p:44-53. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Alina Manta (email available below). General contact details of provider: https://edirc.repec.org/data/fecraro.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.