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A critical appraisal of studies analyzing co-movement of international stock markets with a focus on East-Asian indices

Author

Listed:
  • Jan F. Kiviet

    (Division of Economics, Nanyang Technological University, 14 Nanyang Drive, Singapore 637332.)

  • Zhenxi Chen

    (Faculty of Economics, Business and Social Sciences, Christian-Albrechts University, Olshausen- strasse 40, 24118 Kiel, Germany)

Abstract
Literature is reviewed on the analysis of co-movement between the price indices of stocks or their realized revenues at various markets. Four major categories of frequently recurring methodological shortcomings are registered. These are: (i) omitted regressor problems, (ii) neglecting to verify agreement of estimation outcomes with adopted model assumptions, (iii) employing particular statistical tests in inappropriate situations and, occasionally, (iv) lack of identiÖcation. We focus on studies regarding the interlinkages between emerging and more developed stock markets, in particular those in East-Asia and Wall Street. The devastating e§ects of the detected methodological defects are explained analytically and also illustrated by simulations and empirical examples.

Suggested Citation

  • Jan F. Kiviet & Zhenxi Chen, 2016. "A critical appraisal of studies analyzing co-movement of international stock markets with a focus on East-Asian indices," Economic Growth Centre Working Paper Series 1606, Nanyang Technological University, School of Social Sciences, Economic Growth Centre.
    • Handle: RePEc:nan:wpaper:1606
    as

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    File URL: http://www3.ntu.edu.sg/hss2/egc/wp/2016/2016-06.pdf
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    diagnostic tests; interlinkage of stock markets; maintained hypotheses; model speciÖcation; test methodology;
    All these keywords.

    JEL classification:

    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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