A spatial analysis of international stock market linkages |
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Authors: | Hossein Asgharian Wolfgang Hess Lu Liu |
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Institution: | 1. Department of Economics and Knut Wicksell Center for Financial Studies Lund University, Sweden;2. Department of Economics and Centre for Economic Demography, Lund University, Sweden;3. Department of Statistics, Ludwig Maximilian University of Munich, Germany |
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Abstract: | We employ spatial econometrics techniques to investigate to what extent countries’ economic and geographical relations affect their stock market co-movements. Among the relations that we analyze, bilateral trade proves to be best suited to capture co-variations in returns. We find a strong effect of a unit shock to three regionally dominant countries, namely the US, the UK, and Japan, on other countries through the trade linkage. The degree of stock market dependence increases and the importance of proximity decreases over time and during recessions. We also analyze several regional crises and find a large impact of Thailand on its trade neighbors during the Asian crisis. |
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Keywords: | C23 G15 |
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