| Abstract: |
This article investigates international stock market integration in four major
developed economies, namely the United States, the Economic and Monetary Union
of the European Union, Japan and the United Kingdom, and two Asian emerging,
countries namely China and India, over the period from June 1994 to June 2009.
To model stock market integration we estimate a dynamic version of the
international capital asset pricing model (CAPM) in the absence of purchasing
power parity. Conditional variance is modelled via a multivariate GARCH
specification. To investigate the evolution of integration overtime we
estimate the CAPM in sub-periods. In addition, we connect our results to the
timing of world financial crises. Our findings show that the stock markets
tend to move in parallel after June of 2002, although from 2002 to 2006 there
have not been crises events. These results support the increasing
globalization and interdependence of both emerging and developed markets in
the recent decade, reducing the benefits of portfolio diversification. |