Time-varying inter-market linkage of international stock markets

Abstract

As a response to the growing concern on the interconnection of international stock markets, this study uses the Pena-Box model to capture time-varying relationship of the returns of 13 stock indices during 1993-2002. The results indicate a dynamic relationship of world major stock markets over time, which provide new but supplemental evidence on the conclusion derived from the conventional confirmatory factor analyses in literature.

Time-shift asymmetric correlation analysis of global stock markets

“…They noted a dynamic relationship between major world stock markets over time and indicated a clear short-term continental integration of the selected markets which were replaced by a more complex global hedging behavior in the long run. However in their analysis Hu et al (2008) did not take into account the differences in trading hours of different stock markets.…”

“…Martens and Poon (2001) brought up the issue that the use of day-by-day close-to-close returns underestimates the correlation of returns because international stock markets in different countries have different trading hours. Growing interconnection of international stock markets and time-varying relationship of the returns was analyzed by Hu et al (2008). They noted a dynamic relationship between major world stock markets over time and indicated a clear short-term continental integration of the selected markets which were replaced by a more complex global hedging behavior in the long run.…”

Forecasting automobile sales: the Peña-Box approach

“…The major benefit of using the Peña-Box model is to reduce the dimension of the time series of interest without losing data information, which is exactly what static factor analysis methods fail to perform. Hu, Lin, and Kao (2008) and Li and Hu (2011) have compared the classical factor model with the Peña-Box model from the assumptions of their error terms. The error term, ε t , in the Peña-Box model is assumed to be independent of X t and uncorrelated over time, whereas the factor series X t retains its autocorrelation structure over time; therefore, the factors that capture the time-varying relationships of the whole series and reduce the dimension of the auto-covariance matrix can be designated the common factors of a time series.…”

“…In addition, factor models have been used to analyze certain marketing issues, such as human lifestyle typology (Lastovicka et al 1987), consumer behavior (Aaker 1997), and advertising (Pollay and Mittal 1993). Limited mainly by the usually short-term longitudinal data in marketing, dynamic factor models seem to be more popular in the fields of economics and finance for forecasting the co-movement of a set of gross national product data Watson 1999, 2006;García-Ferrer and Poncela 2002;Bernanke and Boivin 2003;Koop and Potter 2004;Peña and Poncela 2004;Bruneau et al 2007;Raknerud, Skjerpen, and Transportation Planning and Technology 569 Swensen 2010) and international market indices (Hu, Lin, and Kao 2008). However, the great potential of dynamic factor models in marketing research should not be overlooked when a problem with the length of data gathering does not exist.…”

Mercados Financeiros Internacionais: Uma Aplicação da Análise de Componentes Principais em Dados Dependentes

“…Entretanto, em relação à natureza e ao grau de integração dos mesmos existem grandes divergências (Fuinhas;Marques;Nogueira, 2014). Nesse sentido, diversos fatores podem condicionar à interdependência dos mercados: i) a interdependência pode varia ao longo do tempo (Hu, Lin;Kao, 2008;Tam, 2014); ii) os co-movimentos entre os mercados tendem a serem maiores para mercados com curtas distâncias geográficas do que longas (Chong;Wong;Zhang, 2011;Eckel Et Al., 2011); iii) a interdependência dos mercados aumenta conforme a integração econômica se intensifica (Wälti, 2011;Abbas;Khan, 2013); iv) é mais provável que a interdependência ocorra em mercados mais voláteis do que nos menos voláteis (Aityan;Ivanov-Schitz;Izotov, 2010;Jinjarak;362 Revista Brasileira de Finanças (Online), Rio de Janeiro, Vol. 15, N. 3, September 2017 Zheng, 2014); e, v) a interdependência nos mercados internacionais tem crescido significantemente nas últimas décadas.…”