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Who Drives Whom? Investigating The Relationship Between The Major Stock Markets

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  • EVRIM MANDACI, Pinar

    (Department of Business Administration, Dokuz Eylul University, Turkey)

  • CAGLI, Efe Caglar

    (Department of Business Administration, Dokuz Eylul University, Turkey)

Abstract

In this paper we examine the relationships between the major stock markets including the U.S., the U.K, Japan, Germany and France covering a long period from July 1987 to December 2015 and employing Carrion-i-Silvestre et al. (2009) unit root tests and Maki (2012) cointegration test, both of which considering structural breaks. Additionally, we estimate the long-run elasticities of the co-integrating relationships by applying dynamic ordinary least squares algorithm of Stock and Watson (1993). And lastly, we investigate short-run linkages among stock markets using the Granger causality test across the subsamples determined according to the breakpoints. Our results indicate that these markets are mostly co-integrated. Among them only the Japanese market is mildly segmented proving a diversification benefit. Additionally, we observe a gradually decrease in the short-run relationship between these markets.

Suggested Citation

  • EVRIM MANDACI, Pinar & CAGLI, Efe Caglar, 2016. "Who Drives Whom? Investigating The Relationship Between The Major Stock Markets," Studii Financiare (Financial Studies), Centre of Financial and Monetary Research "Victor Slavescu", vol. 20(2), pages 6-24.
    • Handle: RePEc:vls:finstu:v:20:y:2016:i:2:p:6-24
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    More about this item

    Keywords

    Stock Market; Diversification; Cointegration; Structural Breaks; Financial Crisis;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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