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Dynamic linkages among equity markets: local versus basket currencies

Author

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  • David Bessler
  • James Kolari
  • Thein Maung

Abstract

This article compares the stability of interrelationships among nine national equity markets by employing basket currencies versus individual base currencies to measure rates of return. We show that the average correlations of equity indexes based on basket currencies are much lower than the average correlations of equity indexes based on individual home base currencies. Additionally, empirical directed graph results from using basket currencies are more consistent with each other than the results from using different individual currencies. We conclude that basket currencies provide more robust results for studying equity market comovements than individual currencies. By implication, studies on equity market interrelationships, including studies on potential financial contagion between equity markets, should use basket currencies to avoid currency dependent results.

Suggested Citation

  • David Bessler & James Kolari & Thein Maung, 2011. "Dynamic linkages among equity markets: local versus basket currencies," Applied Economics, Taylor & Francis Journals, vol. 43(14), pages 1703-1719.
    • Handle: RePEc:taf:applec:v:43:y:2011:i:14:p:1703-1719
    DOI: 10.1080/00036840802631843
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    Cited by:

    1. Huang, Wei & Lai, Pei-Chun & Bessler, David A., 2018. "On the changing structure among Chinese equity markets: Hong Kong, Shanghai, and Shenzhen," European Journal of Operational Research, Elsevier, vol. 264(3), pages 1020-1032.
    2. Zohrabyan, Tatevik & Bessler, David A., 2006. "On Price Dynamics in International Wheat Markets," 2006 Conference (50th), February 8-10, 2006, Sydney, Australia 137782, Australian Agricultural and Resource Economics Society.

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