Original Research

On the long-run interdependence of stock markets: A tale of correlations, autoregressions and decompositions

Elna Moolman, Suzanne McCoskey
South African Journal of Economic and Management Sciences | Vol 5, No 3 | a2740 | DOI: https://doi.org/10.4102/sajems.v5i3.2740 | © 2018 Elna Moolman, Suzanne McCoskey | This work is licensed under CC Attribution 4.0
Submitted: 06 August 2018 | Published: 30 September 2002

About the author(s)

Elna Moolman, Department of Economics. University of Pretoria, South Africa
Suzanne McCoskey, United States Naval Academy, United States; and University of Pretoria, South Africa

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Abstract

It seems as if national stock markets within certain groups of countries, for example within Europe and Asia, are interdependent. But to what extent are stock markets between these groups interdependent? Is it still possible to diversify among these groups, or have globalization tied world markets together to such an extent that diversification is no longer feasible? In this study we use time series techniques to analyze the interdependence among four of the most important groups of economies, namely Europe, Latin America, Asia and the US. This will show whether it is still possible to diversify between the stock markets of these groups of economies, since stock markets within these groups seem to be interdependent to such an extent that diversification within these groups is no longer possible. On a methodological level, we compare the results of the OLS-VAR with an FM-VAR model, which is a more robust estimation procedure in the presence of non-stationary or cointegrated series.

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