Testing for international equity market integration using regime switching cointegration techniques |
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Authors: | Andrew Davies |
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Affiliation: | 49 Wordsworth Drive, Market Drayton, Shropshire, TF9 1ND, United Kingdom |
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Abstract: | Using MSCI total return index data, this paper analyses the degree of international equity market integration using modern cointegration techniques. The existence of a long run equilibrium across equity markets is important since it implies a violation of weak form market efficiency. Short run deviations away from equilibrium can be expected to reverse, thereby implying a degree of market predictability. This analysis adds to the existing literature by considering a regime switching cointegration relationship that allows for multiple structural breaks over time. The analysis provides scant evidence in favour of market integration with a single regime treatment. There is, however, significant evidence to support a two-regime Markov switching long-run equilibrium relationship that has evolved since the 1970s. |
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Keywords: | C22 G12 F21 |
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