Knut Wicksell Working Paper Series, Knut Wicksell Centre for Financial Studies, Lund University
A spatial analysis of international stock market linkages
(), 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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