Description

This study examines the intra- and inter-regionally change in stock market linkages of the most important stock exchanges in developed and emerging economies. The index level series have a unit root with the exception of Venezuela. So, I use the Johansen multivariate cointegration technique to examine dependencies in stock indices. The results indicate as a general conclusion, that the degree of market linkage among these markets has been slightly increased or has been stable after the crisis period. The only exceptions were some subgroups in Latin America and Emerging Asia. This implies that the degree and nature of stock market integration tend to change over time. Another important conclusion that stands out is the unexpectedly small number of cointegrating vectors found in the post-crisis period, especially in Emerging Markets. This implies that national markets largely follow separate non-stationary common trends. Hence, it can be inferred that there is considerable space for portfolio risk diversification.