Global portfolio investment network and stock market comovement |
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| Institution: | 1. Department of Finance, National Sun Yat-sen University, 70 Lienhai Rd., Kaohsiung 80424, Taiwan, ROC;2. Department of Accounting and Information Technology, National Chung Cheng University, 168 University Road, Minhsiung Township, Chiayi County 62102, Taiwan, ROC;3. Department of Accounting and Information Technology, National Chung Cheng University, 168 University Road, Minhsiung Township, Chiayi County 62102, Taiwan, ROC;4. Department of Finance and Business Law, California State University, Fresno, 5245 N. Backer Ave., Fresno, CA 93740, USA;1. Florida State University, United States;2. University of Missouri, Kansas City, United States;1. Aston Business School, Aston University, Birmingham B4 7ET, England;2. The York Management School, University of York, Freboys Lane, Heslington, York YO10 5GD, England;3. Leeds University Business School, Maurice Keyworth Building, University of Leeds, Moorland Road, Leeds LS6 1AN, England;1. Department of Finance, Sellinger School of Business and Management, Loyola University Maryland, 4501 N. Charles Street, Baltimore, MD 21210, United States;2. Grossman School of Business, University of Vermont, 55 Colchester Avenue, Burlington, VT 05405, United States;3. Department of Finance, College of Business, Florida International University, 11200 S.W. 8th St, RB 247B, Miami, FL 33199, United States |
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| Abstract: | This paper examines the impact of financial connectedness of countries on international stock market comovement. In recent decades, cross-border capital flows have increased dramatically, and I use bilateral cross-border portfolio holdings to create a global portfolio investment network. Using network analysis, I examine the effect of a country's centrality within this network on stock market comovement while also controlling for the country's trade connectedness. The results show that stock markets of countries that occupy highly central positions within the global portfolio investment network exhibit higher comovement after I control for the level of trade connectedness. Countries that simultaneously occupy highly central positions in both financial and trade networks display even higher levels of stock market comovement. Moreover, linkages derived from total portfolio holdings matter just as much as or more than those derived only from equity linkages. |
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