Long-run relationships between international stock prices: further evidence from fractional cointegration tests

The recent empirical literature supports the view that most of the international stock prices are not pairwise cointegrated. However, by using fractional cointegration techniques, this article shows that France, Germany, Hong Kong and Japan's stock prices indices are pairwise fractionally coint...

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Bibliographic Details
Published in:Applied economics 2013-03, Vol.45 (7), p.817-828
Main Authors: Aloy, Marcel, Boutahar, Mohamed, Gente, Karine, Péguin-Feissolle, Anne
Format: Article
Language:English
Subjects:
Asset pricing
Cointegration
Cointegration analysis
Emerging markets
Empirical research
equity markets
fractional cointegration
Indexes
International market
long memory
Manycountries
Measurement
Portfolio management
Quantitative Finance
Stock prices
Studies
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Summary:The recent empirical literature supports the view that most of the international stock prices are not pairwise cointegrated. However, by using fractional cointegration techniques, this article shows that France, Germany, Hong Kong and Japan's stock prices indices are pairwise fractionally cointegrated with US stock prices. Equilibrium errors are mean reverting with half-life lying between 2 and 12 days. It is worthwhile noting that emerging markets like Brazil and Argentina are not pairwise cointegrated with the US stock market. These new results have important implications for asset pricing and international portfolio strategy.
ISSN:0003-6846
1466-4283
DOI:10.1080/00036846.2011.566207