International portfolio diversification: A study of linkages among the U.S., European and Japanese equity markets |
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| Institution: | 1. Senior Researcher, ReliaSoft Corporation, 1450 S. Eastside Loop, Tucson, AZ 85710, United States;2. Postdoctoral Research Fellow, University of Michigan Health System, Ann Arbor, MI 48103, United States;1. Sección de Neurorradiología Diagnóstica y Terapéutica, Hospital Clínico Universitario Virgen de la Arrixaca, Murcia, España;2. Servicio de Neurología, Complejo Hospitalario Universitario de Albacete, Albacete, España;1. Department of Accounting Information, National Taichung University of Science and Technology, 129 Sanmin Rd., Sec 3, Taichung 40401, Taiwan;2. Department of International Business Studies, National Chi-Nan University, Nantou, Taiwan;3. Department of Finance, National Sun Yat-sen University, Kaohsiung, Taiwan;1. High Institute of Management of Sousse, University of Sousse, Tunisia;2. Laboratory of Management of Innovation and Sustainable Development (LAMIDED), University of Sousse, Tunisia;3. Faculty of Economics and Management Sciences of Mahdia, University of Monastir, Tunisia;4. LAFICOIF, FSEG Tunis, University El Manar, Tunisia;1. Stockholm University, School of Business, SE-106 91, Stockholm, Sweden;2. Blekinge Institute of Technology, Institute for Industrial Economics, SE-371 79 Karlskrona, Sweden |
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| Abstract: | In this paper, we examine the short-term linkages among five leading stock markets with the objective of evaluating the case for international portfolio diversification as well as the stability of stock market interdependence after an exogenous shock. We utilize daily closing equity price data from U.S., U.K., France, Germany and Japan during the period from January 1999 to February 2002 and investigate the joint impact of any four equity markets on the fifth market. The findings indicate that even though the interdependencies among the markets are significant, there is still room for international portfolio diversification. Also, the study provides mixed results for the hypothesis that the international market correlations change after an exogenous shock. The tests of stability of correlations are based on before-and-after analyses of two events: the introduction by the European Union of the euro as official currency and the September 11, 2001, terrorist events in U.S. |
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