Economic determinants of the correlation structure across international equity markets |
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Authors: | Kevin Bracker Paul D Koch |
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Institution: | a Economics, Finance, and Banking (K.B.), Pittsburg State University, Pittsburg, Kansas, USA;b School of Business (P.D.K.), University of Kansas, Lawrence, Kansas, USA |
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Abstract: | This study investigates whether, how, and why the matrix of correlations across international equity markets changes over time. A theoretical model is proposed to specify potential economic determinants of this correlation structure. The empirical validity of this economic model is investigated by employing daily returns for different national stock indexes, from 1972 through 1993, to construct a quarterly time series of the correlation matrix. This quarterly time series is used to investigate the stability of the correlation matrix over time, and to estimate the economic model. The model is then applied to generate out-of-sample forecasts of the correlation structure.Keywords: International market integrationJEL classification: F36, G15. |
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