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A spatial analysis of international stock market linkages

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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.

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  • Asgharian, Hossein & Hess, Wolfgang & Liu, Lu, 2013. "A spatial analysis of international stock market linkages," Knut Wicksell Working Paper Series 2013/3, Lund University, Knut Wicksell Centre for Financial Studies.
    • Handle: RePEc:hhs:luwick:2013_003
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    More about this item

    Keywords

    Financial and economic integration; stock market co-movements; spatial econometrics; feedback effects;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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