Hostname: page-component-cc8bf7c57-j4qg9 Total loading time: 0 Render date: 2024-12-11T22:57:14.391Z Has data issue: false hasContentIssue false
  • English
  • Français

Comovement of International Equity Markets: A Taxonomic Approach

Published online by Cambridge University Press:  19 October 2009

Don B. Panton ,
V. Parker Lessig  and
O. Maurice Joy
Get access Rights & Permissions [Opens in a new window]

Extract

We have been concerned with investigating the structure of rate-of-return comovements among major international equity markets. Working with 12 such markets we have analyzed the structural features of the configurations over alternative time periods (one-, three-, five- and ten-year periods) and the intertemporal stability of the configurations.

On the issue of intertemporal stability we found considerable one-year and three-year stability, but somewhat weaker stability in the five-year case. As a measure of stability we used cophenetic correlation coefficients between successive (in time) dendrograms. This technique was described in the methodology section.

We uncovered several interesting structural features. There seems to be a core of international markets that have higher degrees of similarity than the other markets. Furthermore, these markets (the United States, Canada, the Netherlands, Switzerland, West Germany and to a lesser extent, Belgium) may be generally described as relatively well developed and open to international capital flows. There is also an obviously strong tie between the United States and Canadian markets. There are less strong, but identifiable ties between France and Belgium, Germany and the Netherlands, and England and Australia. Many of these results parallel Ripley's [14] findings. We also noticed some countries that tend to be least similar to most other countries: Austria and Italy. Ten-year results corroborated these findings.

This study is only descriptive. We have only attempted to identify international equity market structure and structural change. A logical subsequent research area is to explain observed structural properties and the causes of structural change. We hope that our research will help provide some basis for this further analysis.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 11 , Issue 3 , September 1976 , pp. 415 - 432
Copyright
Copyright © School of Business Administration, University of Washington 1976

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

[1]Agmon, Tamir. “The Relations among Equity Markets: A Study of Share Price Co-Movements in the United States, Germany and Japan.” Journal of Finance (September 1972).Google Scholar
[2]Agmon, Tamir. “Country Risk: The Significance of the Country Factor for Share Price Movements in the United Kingdom, Germany and Japan.” Journal of Business (January 1973).CrossRefGoogle Scholar
[3]Davis, John C.Statistics and Data Analysis in Geology. New York: John Wiley & Sons, Inc., 1973.Google Scholar
[4]Elton, Edwin J., and Gruber, Martin J.. “Improved Forecasting through the Design of Homogeneous Groups.” Journal of Business (October 1971).CrossRefGoogle Scholar
[5]Green, Paul E.; Frank, Ronald E.; and Robinson, Patrick J.. “Cluster Analysis in Test Market Selection.” Management Science (April 1967).Google Scholar
[6]Grubel, Herbert G. “Internationally Diversified Portfolios: Welfare Gains and Capital Flows.” American Economic Review (December 1968), pp. 1299–1314.Google Scholar
[7]Grubel, Herbert G., and Fadner, Kenneth. “The Interdependence of International Equity Markets.” Journal of Finance (March 1971), pp. 89–94.CrossRefGoogle Scholar
[8]Kernan, Jerome B. “Choice Criteria, Decision Behavior and Personality.” Journal of Marketing Research (May 1968).CrossRefGoogle Scholar
[9]Lessard, Donald R. “International Portfolio Diversification: A Multivariate Analysis for a Group of Latin American Countries.” Journal of Finance (June 1973).CrossRefGoogle Scholar
[10]Lessig, V. Parker. “Comparing Cluster Analyses with Cophenetic Correlation.” Journal of Marketing Research (February 1972).Google Scholar
[11]Lessig, V. Parker, and Tollefson, John O.. “Market Segmentation through Numerical Taxonomy.” Journal of Marketing Research (November 1971).Google Scholar
[12]Levy, Haim, and Sarnat, Marshall. “International Diversification of Investment Portfolios.” American Economic Review (September 1970).Google Scholar
[13]McDonald, John G. “French Mutual Fund Performance: Evaluation of Internationally Diversified Portfolios.” Journal of Finance (August 1973).Google Scholar
[14]Ripley, Duncan M. “Systematic Elements in the Linkage of National Stock Market Indices.” Review of Economics and Statistics (August 1973).CrossRefGoogle Scholar
[15]Sokal, Robert R., and Rohlf, F. James. “The Comparison of Dendrograms by Objective Methods.” Taxon (February 1962).Google Scholar
[16]Sokal, Robert R., and Sneath, Peter H. A.. Principles of Numerical Taxonomy San Francisco: W. H. Freeman and Co., 1963.Google Scholar