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Why Do Markets Move Together? An Investigation of U.S.-Japan Stock Return Comovements

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  • Karolyi, G Andrew
  • Stulz, Rene M

Abstract

This article explores the fundamental factors that affect cross-country stock return correlations. Using transactions data from 1988 to 1992, the authors construct overnight and intraday returns for a portfolio of Japanese stocks using their NYSE-traded American depository receipts and a matched-sample portfolio of U.S. stocks. They find that U.S. macroeconomic announcements, shocks to the yen/dollar foreign exchange rate and Treasury bill returns, and industry effects have no measurable influence on U.S. and Japanese return correlations. However, large shocks to broad-based market indices (Nikkei Stock Average and Standard and Poor's 500 Stock Index) positively impact both the magnitude and persistence of the return correlations. Copyright 1996 by American Finance Association.

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  • Karolyi, G Andrew & Stulz, Rene M, 1996. "Why Do Markets Move Together? An Investigation of U.S.-Japan Stock Return Comovements," Journal of Finance, American Finance Association, vol. 51(3), pages 951-986, July.
    • Handle: RePEc:bla:jfinan:v:51:y:1996:i:3:p:951-86
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