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Detecting capital market convergence clubs

Author

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  • Beylunioglu Fuat C.

    (Department of Economics, Istanbul Bilgi University, Istanbul, Turkey)

  • Stengos Thanasis

    (Department of Economics and Finance, University of Guelph, Guelph, Ontario, Canada)

  • Yazgan M. Ege

    (Department of Economics and Finance, University of Guelph, Guelph, Ontario, Canada)

Abstract

In this study, we propose a new method to find convergence clubs that combine pairwise method of testing convergence with maximal clique algorithm. Unlike many of those already developed in the literature, this new method aims to find convergence clubs endogenously without depending on priori classifications. We use our method to study convergence among different capital markets as captured by their respective indices. Stock market convergence would indicate the absence of arbitrage opportunities in moving between the different markets as they would all present investors with similar risks. Furthermore, stock market convergence would be a precursor to GDP convergence as these economies would be bound by similar (possibly unobservable) common factors that affect long run macroeconomic performance.

Suggested Citation

  • Beylunioglu Fuat C. & Stengos Thanasis & Yazgan M. Ege, 2017. "Detecting capital market convergence clubs," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 21(3), pages 1-14, June.
    • Handle: RePEc:bpj:sndecm:v:21:y:2017:i:3:p:14:n:4
    DOI: 10.1515/snde-2016-0062
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    More about this item

    Keywords

    stock market convergence; convergence clubs; maximal clique algorithm;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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