Time-Varying World Market Integration

Abstract

We propose a conditional measure of capital market integration that allows us to characterize both the cross-section and time-series of expected returns in developed and emerging markets. Our measure, which arises from a conditional regime-switching model, allows us to describe expected returns in countries that are segmented from world capital markets in one part of the sample and become integrated later in the sample. Our results suggest that a number of emerging markets exhibit time-varying integration. Interestingly, some markets appear to be more integrated than one might expect based on prior knowledge of investment restrictions.Other markets appear segmented even though foreigners have relatively free access to their capital markets.

Volatility transmission and volatility impulse response functions among the Greater China stock markets

“…As suggested by Bekaert and Harvey (1995), this procedure eliminates the local inflation. We prefer daily return data to lower frequency data, such as weekly and monthly returns, because longer horizon returns can obscure transient responses to innovations that may last for a few days only.…”

The Effect of Market Regimes on Style Allocation

“…For an extensive overview concerning the econometrics issues of regime-switching models and an overview about empirical evidence, we refer to Kim and Nelson (1999). One of the first papers in financial econometrics that estimates time-varying integration of single countries to the world market is Bekaert and Harvey (1995).…”

“…Objects of the analysis are usually univariate time series such as a representative stock index or an interest rate. In a multivariate setting, Bekaert and Harvey (1995), for example, estimate a multivariate regime-switching model.…”

“…Moreover, analysts are very likely to underestimate earnings of value companies, as Doukas et al (2002) point out. With respect to the size effect originally discovered by Banz (1981), new evidence by Berk (1997) and Knez and Ready (1997) casts some doubt on the robustness of the size premium.…”

Political and Institutional Factors in the Convergence of International Equity Markets: Evidence from the Club Convergence and Clustering Procedure

“…Alesina et al (1997), Knack and Keefer (1997), Barro (1996), and Temple and Johnson (1998) discuss the role of social capital in the functioning of capital markets. Campbell and Hamao (1992), Bekaert and Harvey (1995), Rodrik (1996), Djankov et al (2010), and Barseghyan and DiCecio (2010) emphasize the importance of trade openness and liberalized markets for capital market convergence. Alesina et al (1997) and Easterly and Levine (1997) draw attention to the impact of ethnic diversity with respect to the integration of capital markets as well.…”