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Are equity market daily price indices and returns in the major european markets european markets cointegrated? Tests and evidence

Author

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  • Kasibhatla, Krishna
  • Stewart, David
  • Sen, Swapan
  • Malindretos, John

Abstract

This paper examines the relationship between the stock market price indices and index returns in three major European equity markets, FTSE100 (U.K), DAX (Germany), and CAC40 (France). Our results, obtained using a vector autoregressive (VAR) model, indicate that while the price indices of the three markets are cointegrated, returns on the indices are not cointegrated. These findings are not in agreement with the earlier studies that reported cointegration in the returns of the three indices. The sample period for the earlier studies ranges from mid-1980s to mid-1990s. Our results, using the sample period from late 1990 to early 2002, clearly indicate that there is no long run equilibrium relationship between the index returns on the three markets, although the three price indices are cointegrated.

Suggested Citation

  • Kasibhatla, Krishna & Stewart, David & Sen, Swapan & Malindretos, John, 2006. "Are equity market daily price indices and returns in the major european markets european markets cointegrated? Tests and evidence," MPRA Paper 36502, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:36502
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    References listed on IDEAS

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    1. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    2. Lo, Andrew W. & Craig MacKinlay, A., 1990. "An econometric analysis of nonsynchronous trading," Journal of Econometrics, Elsevier, vol. 45(1-2), pages 181-211.
    3. Osterwald-Lenum, Michael, 1992. "A Note with Quantiles of the Asymptotic Distribution of the Maximum Likelihood Cointegration Rank Test Statistics," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 461-472, August.
    4. Engle, R. F. & Granger, C. W. J. (ed.), 1991. "Long-Run Economic Relationships: Readings in Cointegration," OUP Catalogue, Oxford University Press, number 9780198283393.
    5. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501.
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    Citations

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    Cited by:

    1. Payal Jain & Sanjay Sehgal, 2019. "An examination of return and volatility spillovers between mature equity markets," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 43(1), pages 180-210, January.
    2. Mohamed Shikh Albaity & Hamdia Mudor, 2012. "Return performance, Cointegration and short run dynamics of Islamic and non-Islamic indices: evidence from the US and Malaysia during the subprime crisis," Economic Analysis Working Papers (2002-2010). Atlantic Review of Economics (2011-2016), Colexio de Economistas de A Coruña, Spain and Fundación Una Galicia Moderna, vol. 1, pages 1-1, June.
    3. Trofimov, Ivan D., 2013. "Nonparametric Approach to Portfolio Diversification: The Case of Australian Equity Market - Un approccio non-parametrico alla diversificazione del portafoglio: il caso del mercato azionario australian," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 66(1), pages 87-112.
    4. Ekaterina Dorodnykh, 2014. "Determinants of stock exchange integration: evidence in worldwide perspective," Journal of Economic Studies, Emerald Group Publishing, vol. 41(2), pages 292 - 316, March.
    5. Trofimov, Ivan D., 2013. "Nonparametric approach to portfolio diversification: the case of Australian equity market," MPRA Paper 79562, University Library of Munich, Germany.
    6. Muhammad Kashif, 2015. "Comparison of Equity Markets of SAARC Nations with the Equity Markets European Union Nations," South Asian Journal of Management Sciences (SAJMS), Iqra University, Iqra University, vol. 9(1), pages 23-31, Spring.
    7. Mustapher Faque & Umit Hacioglu, 2021. "Investigating the impact of Covid-19 pandemic on stock markets:Evidence from global equity indices," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 10(7), pages 199-219, October.

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    More about this item

    Keywords

    Unit root; stationarity; co-integration;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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