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Short-term and long-term price linkages between the equity markets of Australia and its major trading partners

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  • Eduardo Roca

Abstract

This paper investigates the price linkages between the equity market of Australia and that of the US, UK, Japan, Hong Kong, Singapore, Taiwan, and Korea using weekly MSCI stock market data covering the period 1974-1995. Cointegration test using the Johansen (Journal of Economic Dynamics and Control, 12, 1988) and Johansen and Juselius (Oxford Bulletin of Economics and Statistics, 52, 1990) procedure and Granger-causality tests based on error-correction models and standard vector autoregression models are conducted. No cointegration was found between Australia and the other markets. However, the Granger-causality and forecast variance decomposition analyses reveal that Australia is significantly linked with the US and the UK. The impulse response analyses further show that Australia responds to shocks from the US and the UK immediately during the first week and this response is completed with a period of four weeks.

Suggested Citation

  • Eduardo Roca, 1999. "Short-term and long-term price linkages between the equity markets of Australia and its major trading partners," Applied Financial Economics, Taylor & Francis Journals, vol. 9(5), pages 501-511.
    • Handle: RePEc:taf:apfiec:v:9:y:1999:i:5:p:501-511
    DOI: 10.1080/096031099332168
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    References listed on IDEAS

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    1. Paul D. McNelis, 1993. "The Response of Australian Stock, Foreign Exchange and Bond Markets to Foreign Asset Returns and Volatilities," RBA Research Discussion Papers rdp9301, Reserve Bank of Australia.
    2. Haluk Akdogan, 1995. "The Integration of International Capital Markets," Books, Edward Elgar Publishing, number 6.
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