IDEAS home Printed from https://ideas.repec.org/a/taf/intecj/v11y1997i2p103-116.html
   My bibliography  Save this article

Financial Integration and Market Efficiency: Some International Evidence from Cointegration Tests

Author

Listed:
  • Ky-Hyang Yuhn

Abstract

This study investigates whether the globalization of financial markets enhances the efficiency of national stock markets. To this end, we have developed a dynamic representation of cointegration which is consistent with hypothesis that stock prices reflect the efficient discounting of new information on market fundamentals and testes for market efficiency in five industrialized markets (the United States, Canada, Japan, the United Kingdom, and Germany) over the last two decades. Our empirical analysis indicates that the U.S. and Canadian stock markets obey the long-run equilibrium path implied by our dynamic cointegration model, but the Japanese, British, and German markets do not exhibit such characteristics. Thus, it can be claimed that the stock markets of the United States and Canada are informationally efficient, whereas those of Japan, the United Kingdom, and Germany are not. [G15, G14]

Suggested Citation

  • Ky-Hyang Yuhn, 1997. "Financial Integration and Market Efficiency: Some International Evidence from Cointegration Tests," International Economic Journal, Taylor & Francis Journals, vol. 11(2), pages 103-116.
    • Handle: RePEc:taf:intecj:v:11:y:1997:i:2:p:103-116
    DOI: 10.1080/10168739700000013
    as

    Download full text from publisher

    File URL: http://www.tandfonline.com/doi/abs/10.1080/10168739700000013
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/10168739700000013?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Phillips, P C B, 1987. "Time Series Regression with a Unit Root," Econometrica, Econometric Society, vol. 55(2), pages 277-301, March.
    2. Perron, Pierre, 1988. "Trends and random walks in macroeconomic time series : Further evidence from a new approach," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 297-332.
    3. Taylor, Mark P & Tonks, Ian, 1989. "The Internationalisation of Stock Markets and the Abolition of U.K. Exchange Control," The Review of Economics and Statistics, MIT Press, vol. 71(2), pages 332-336, May.
    4. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    5. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
    6. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-1580, November.
    7. Campbell, John Y & Shiller, Robert J, 1987. "Cointegration and Tests of Present Value Models," Journal of Political Economy, University of Chicago Press, vol. 95(5), pages 1062-1088, October.
    8. Gonzalo, Jesus, 1994. "Five alternative methods of estimating long-run equilibrium relationships," Journal of Econometrics, Elsevier, vol. 60(1-2), pages 203-233.
    9. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    10. LeRoy, Stephen F & Porter, Richard D, 1981. "The Present-Value Relation: Tests Based on Implied Variance Bounds," Econometrica, Econometric Society, vol. 49(3), pages 555-574, May.
    11. Cerchi, Marlene & Havenner, Arthur, 1988. "Cointegration and stock prices : The random walk on wall street revisited," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 333-346.
    12. Phillips, P C B, 1987. "Time Series Regression with a Unit Root," Econometrica, Econometric Society, vol. 55(2), pages 277-301, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Andrew Worthington & Helen Higgs, 2004. "Transmission of equity returns and volatility in Asian developed and emerging markets: a multivariate GARCH analysis," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 9(1), pages 71-80.
    2. Guttler, Caio & Meurer, Roberto & Da Silva, Sergio, 2006. "Informational inefficiency of the Brazilian stockmarket," MPRA Paper 1980, University Library of Munich, Germany.
    3. Laopodis, Nikiforos T., 2004. "Financial market liberalization and stock market efficiency: Evidence from the Athens Stock Exchange," Global Finance Journal, Elsevier, vol. 15(2), pages 103-123, August.
    4. Hassan, M. Kabir & Ngene, Geoffrey M. & Yu, Jung-Suk, 2015. "Credit default swaps and sovereign debt markets," Economic Systems, Elsevier, vol. 39(2), pages 240-252.
    5. Md. Saifur Rahman & Farihana Shahari, 2019. "Does the Financial Integration in ASEAN+3 Respond to Financial Cooperation Agreement and Influence the Real Sectors?," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 22(01), pages 1-18, March.
    6. Rahman, Md. Saifur & Shahari, Farihana, 2017. "The nexus between financial integration and real economy: Solow-growth model concept," Research in International Business and Finance, Elsevier, vol. 42(C), pages 1244-1253.
    7. Hon, Mark T. & Strauss, Jack K. & Yong, Soo-Keong, 2007. "Deconstructing the Nasdaq bubble: A look at contagion across international stock markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 17(3), pages 213-230, July.
    8. Md. Saifur Rahman & Farihana Shahari, 2021. "Does the financial cooperation agreement increase the interdependency among ASEAN+3 equity markets? A Markov switching approach," International Economics and Economic Policy, Springer, vol. 18(4), pages 869-899, October.
    9. Andrew Worthington & Helen Higgs, 2001. "A multivariate GARCH analysis of equity returns and volatility in Asian equity markets," School of Economics and Finance Discussion Papers and Working Papers Series 089, School of Economics and Finance, Queensland University of Technology.
    10. Sergio Da Silva & Roberto Meurer & Caio Guttler, 2008. "Is the Brazilian stockmarket efficient?," Economics Bulletin, AccessEcon, vol. 7(1), pages 1-16.
    11. C. Worthington, Andrew & Higgs, Helen, 2010. "Assessing Financial Integration in the European Union Equity Markets: Panel Unit Root and Multivariate Cointegration and Causality Evidence," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 25, pages 457-479.
    12. Siv Taing & Andrew Worthington, 2005. "Return Relationships Among European Equity Sectors: A Comparative Analysis Across Selected Sectors in Small and Large Economies," Journal of Applied Economics, Taylor & Francis Journals, vol. 8(2), pages 371-388, November.
    13. Siv Heng Taing & Andrew C. Worthington, 2002. "Comovements among European equity sectors: Selected evidence from the consumer discretionary, consumer staples, financial, industrial and materials sectors," School of Economics and Finance Discussion Papers and Working Papers Series 116, School of Economics and Finance, Queensland University of Technology.
    14. repec:ebl:ecbull:v:7:y:2008:i:1:p:1-16 is not listed on IDEAS

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Eleni Constantinou & Avo Kazandjian & Georgios P. Kouretas & Vera Tahmazian, 2008. "Common Stochastic Trends Among The Cyprus Stock Exchange And The Ase, Lse And Nyse," Bulletin of Economic Research, Wiley Blackwell, vol. 60(4), pages 327-349, October.
    2. Chan, Kam C. & Norrbin, Stefan C. & Lai, Pikki, 1997. "Are stock and bond prices collinear in the long run?," International Review of Economics & Finance, Elsevier, vol. 6(2), pages 193-201.
    3. Guglielmo Maria Caporale & Luis A. Gil‐Alana, 2004. "Fractional cointegration and tests of present value models," Review of Financial Economics, John Wiley & Sons, vol. 13(3), pages 245-258.
    4. Masih, Rumi & Masih, Abul M. M., 2000. "A Reassessment of Long-Run Elasticities of Japanese Import Demand," Journal of Policy Modeling, Elsevier, vol. 22(5), pages 625-639, September.
    5. Myers, Robert J., 1994. "Time Series Econometrics and Commodity Price Analysis: A Review," Review of Marketing and Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 62(02), pages 1-15, August.
    6. Tim Bollerslev & Robert J. Hodrick, 1992. "Financial Market Efficiency Tests," NBER Working Papers 4108, National Bureau of Economic Research, Inc.
    7. Froot, Kenneth A. & Rogoff, Kenneth, 1995. "Perspectives on PPP and long-run real exchange rates," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 32, pages 1647-1688, Elsevier.
    8. Chulho Jung & K. Doroodian & Robert Albarano, 1998. "The unbiased forward rate hypothesis: a re-examination," Applied Financial Economics, Taylor & Francis Journals, vol. 8(6), pages 567-575.
    9. Kam Chan & Louis Cheng & Ming-Shiun Pan, 1997. "Market efficiency and cointegration: Some evidence in Pacific-Basin black exchange markets," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 21(1), pages 25-31, March.
    10. Masih, Abul M. M. & Masih, Rumi, 1999. "Are Asian stock market fluctuations due mainly to intra-regional contagion effects? Evidence based on Asian emerging stock markets," Pacific-Basin Finance Journal, Elsevier, vol. 7(3-4), pages 251-282, August.
    11. Walter Krämer, 1999. "Kointegration von Aktienkursen," Schmalenbach Journal of Business Research, Springer, vol. 51(10), pages 915-936, October.
    12. Vicente Esteve, 2004. "Política fiscal y productividad del trabajo en la economía española: un análisis de series temporales," Revista de Analisis Economico – Economic Analysis Review, Universidad Alberto Hurtado/School of Economics and Business, vol. 19(1), pages 3-29, June.
    13. repec:got:cegedp:76 is not listed on IDEAS
    14. Crowder, William J. & Wohar, Mark E., 1998. "Cointegration, forecasting and international stock prices," Global Finance Journal, Elsevier, vol. 9(2), pages 181-204.
    15. Michael KUEHL, 2008. "Strong Comovements of Exchange Rates: Theoretical and Empirical Cases when Currencies Become the Same Asset," EcoMod2008 23800071, EcoMod.
    16. Kam C. Chan & Louis T. W. Cheng & Joseph K. W. Fung, 2001. "Ownership Restrictions and Stock-Price Behavior in China," Chinese Economy, Taylor & Francis Journals, vol. 34(1), pages 29-48, January.
    17. Baker, Mindy Lyn, 2009. "Three essays concerning agriculture and energy," ISU General Staff Papers 200901010800001849, Iowa State University, Department of Economics.
    18. Gilbert Colletaz & Jean-Pierre Gourlaouen, 1990. "Coïntégration et structure par terme des taux d'intérêt," Revue Économique, Programme National Persée, vol. 41(4), pages 687-712.
    19. Salim Darbar, 1994. "The unbiasedness of the forward exchange rate: evidence from the 1920s," Applied Economics Letters, Taylor & Francis Journals, vol. 1(3), pages 49-53.
    20. G. Geoffrey Booth & Paul Brockman & Yiuman Tse, 1998. "The relationship between US and Canadian wheat futures," Applied Financial Economics, Taylor & Francis Journals, vol. 8(1), pages 73-80.
    21. Masih, Rumi & Masih, Abul M. M., 1996. "Stock-Watson dynamic OLS (DOLS) and error-correction modelling approaches to estimating long- and short-run elasticities in a demand function: new evidence and methodological implications from an appl," Energy Economics, Elsevier, vol. 18(4), pages 315-334, October.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:intecj:v:11:y:1997:i:2:p:103-116. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RIEJ20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.