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Are Daily Stock Price Indices in the Major European Equity Markets Cointegrated? Tests and Evidence

Author

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  • Krishna M. Kasibhatla
  • David Stewart
  • Swapan Sen
  • John Malindretos

Abstract

This study investigates short-run and long-run linkages among major West European equity markets in London (FTSE100), Frankfurt (DAX30), and Paris (CAC40). Long-run market co-movements of the three price indices are detected employing cointegration and vector error correction methodology. Empirical results of this study support the presence of one cointegrating vector and two common trends. CAC index is found to be weakly exogenous. The short-run dynamics indicate short-run causal links running both ways between FTSE and DAX.

Suggested Citation

  • Krishna M. Kasibhatla & David Stewart & Swapan Sen & John Malindretos, 2006. "Are Daily Stock Price Indices in the Major European Equity Markets Cointegrated? Tests and Evidence," The American Economist, Sage Publications, vol. 50(2), pages 47-57, October.
    • Handle: RePEc:sae:amerec:v:50:y:2006:i:2:p:47-57
    DOI: 10.1177/056943450605000205
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    2. Mohamed Shikh Albaity & Hamdia Mudor, 2012. "Return performance, Cointegration and short run dynamics of Islamic and non-Islamic indices: evidence from the US and Malaysia during the subprime crisis," Economic Analysis Working Papers (2002-2010). Atlantic Review of Economics (2011-2016), Colexio de Economistas de A Coruña, Spain and Fundación Una Galicia Moderna, vol. 1, pages 1-1, June.
    3. Trofimov, Ivan D., 2013. "Nonparametric Approach to Portfolio Diversification: The Case of Australian Equity Market - Un approccio non-parametrico alla diversificazione del portafoglio: il caso del mercato azionario australian," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 66(1), pages 87-112.
    4. Trofimov, Ivan D., 2013. "Nonparametric approach to portfolio diversification: the case of Australian equity market," MPRA Paper 79562, University Library of Munich, Germany.

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