2000 Fiscal Year Final Research Report Summary
Empirical Analysis of International Stock Price Linkage
| Project/Area Number |
10630087
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| Research Category |
Grant-in-Aid for Scientific Research (C)
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| Allocation Type | Single-year Grants |
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| Section | 一般 |
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| Research Field |
Public finance/Monetary economics
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| Research Institution | Kwansei Gakuin University (2000)
Osaka University (1998-1999) |
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Principal Investigator |
HIRAYAMA Kenjiro Kwansei Gakuin University, School of Economics, Professor, 経済学部, 教授 (70165207)
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| Project Period (FY) |
1998 – 2000
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| Keywords | stock price / international linkage / VAR / portfolio adjustments / exchange rates / international investments |
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| Research Abstract |
This research project involved empirical analysis of international stock price linkage, utilizing daily data for four major countries (Japan, US, UK, Germany) with over 6000 observations between 1975 and 1997. Cointegration tests were applied to split samples, showing increasing international stock price linkage in recent years. This is consistent with many previous studies. However, daily rates of change less than 0.4% were found to insiginificantly affect other stock price indexes. Rates of change over 0.4% are transmitted significantly to other countries, indicating 'threshold effects' in stock price linkage. Another finding is that negative changes are more significantly transmitted than positive ones, exhibiting 'asymmetry' in the linkage.
For a given country, the strongest influence emanates from the country where the closing of its share trading is next followed by the country in question. For example, Japan is influenced most significantly by the U.S.stock prices and the latter is strongly affected by the U.K.
A number of causes for the international stock price linkage are possible. One candidate is the existence of shocks common to the countries. Thus, magnitudes of common and country-specific shocks were estimated. The size of common shocks was found to be considerale. Another possible cause is portfolio adjustments by international investors. They would evaluate stock prices in different countries in their own currency, implying a role played by exchange rate movements. A VAR model was specified with and without exchange rate factors. Non-nested tests were conducted to test if exchange rates have any significant explanatory power. In many cases, exchange rates were found to have little or no explanatory power, implying that portfolio adjustments by international stock investors are not the cause of international stock price linkage.
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