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International correlation structure of financial market movements - the evidence from the UK and the US

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  • Arnold Cheng

Abstract

This paper provides new empirical evidence on the international transmission mechanism of the UK and the US stock market movements and the relationship between the UK and the US economic indicators by using factor analytic approach and canonical correlation analysis. The results show that the UK and the US economies are closely related. The US economic cycle seems to lead those in the UK, as the US economy is more influential than the UK economy. This is in accordance with the results supporting high international integration between the UK and the US stock markets. There seems to be a statistically significant relation between the UK and the US stocks. Significant evidence for feedback relationships between the two stock markets is also found. Overall, support is offered to the finding that the US financial market and US economy seem to have more effect on the behaviour of the UK counterpart than vice versa.

Suggested Citation

  • Arnold Cheng, 1998. "International correlation structure of financial market movements - the evidence from the UK and the US," Applied Financial Economics, Taylor & Francis Journals, vol. 8(1), pages 1-12.
    • Handle: RePEc:taf:apfiec:v:8:y:1998:i:1:p:1-12
    DOI: 10.1080/096031098333195
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    References listed on IDEAS

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    1. Bruce N. Lehmann & David M. Modest, 1985. "The Empirical Foundations of the Arbitrage Pricing Theory II: The Optimal Construction of Basis Portfolios," NBER Working Papers 1726, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Kim Hiang Liow & James R. Webb, 2009. "Common factors in international securitized real estate markets," Review of Financial Economics, John Wiley & Sons, vol. 18(2), pages 80-89, April.
    2. Salehizadeh, Mehdi, 2003. "U.S. multinationals and the home bias puzzle: an empirical analysis," Global Finance Journal, Elsevier, vol. 14(3), pages 303-318, December.
    3. Susana Iglesias Antelo & Jean-Pierre Levy Mangin, 2010. "An analysis of the risk-return relationship in the Spanish capital market using a structural equation model," Applied Economics Letters, Taylor & Francis Journals, vol. 17(14), pages 1397-1403.
    4. Ihsan Isik & M. Kabir Hassan, 2003. "Efficiency, Ownership and Market Structure, Corporate Control and Governance in the Turkish Banking Industry," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 30(9‐10), pages 1363-1421, December.
    5. Marina Emiris, 2002. "Measuring capital market integration," BIS Papers chapters, in: Bank for International Settlements (ed.), Market functioning and central bank policy, volume 12, pages 200-221, Bank for International Settlements.
    6. David Morelli, 2009. "Capital market integration: evidence from the G7 countries," Applied Financial Economics, Taylor & Francis Journals, vol. 19(13), pages 1043-1057.

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