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Knut Wicksell Centre for Financial Studies, Lund University Knut Wicksell Working Paper Series, Knut Wicksell Centre for Financial Studies, Lund University

No 2013/3:
A spatial analysis of international stock market linkages

Hossein Asgharian (), Wolfgang Hess and Lu Liu

Abstract: We employ spatial econometrics techniques to investigate to what extentcountries’ economic and geographical relations affect their stock market comovements.We propose an econometric model that is particularly suitable for financial data, where common time trends prevail. In general, among the relations that we analyze, bilateral trade and exchange rate stability prove to be best suited to capture return co-variations. An analysis of three regionally dominant countries shows that bilateral trade is the most important relation regarding the transmission of shocks from the US and Japan to other countries, whereas the UK affects mostly its geographical neighbors.

Keywords: Financial and economic integration; stock market co-movements; spatial econometrics; feedback effects; (follow links to similar papers)

JEL-Codes: C23; G15; (follow links to similar papers)

37 pages, February 3, 2013

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