Journal Article
Comovements among national stock markets
Abstract: This paper uses the methodology of Hansen and Jaganathan (1991) to derive a lower bound on the correlation between any pair of asset returns under the hypothesis of complete markets. The bound is a simple function of the two assets' Sharpe ratios and the coefficient of variation of a unique stochastic discount factor. The paper uses this bound to conduct robust, nonparametric tests of the hypothesis that international equity markets are integrated. ; Using monthly stock return data from the U.S., Japan, and Great Britain for the period 1980 through 1993, I find that conclusions about market integration depend sensitively on the assumed variation of the (unobserved) common world discount rate. Given the observed correlations in returns, markets are more likely to be integrated the more volatile is the discount rate.
Keywords: Stock market; Stock - Prices;
Access Documents
File(s):
File format is text/html
https://www.frbsf.org/wp-content/uploads/95-1_14-20.pdf
Description: Full Text
Authors
Bibliographic Information
Provider: Federal Reserve Bank of San Francisco
Part of Series: Economic Review
Publication Date: 1995
Pages: 14-20
Order Number: 1