Abstract

This study investigates financial cointegration of G7 equity markets. The term 'international stock market integration' refers to an area of research in financial economics that covers many different aspects of the interrelationships across equity markets. The cointegration of order tow model, 1(2), that was developed by Johansen is used to specify potential cointegration structure. The empirical validity of this economic model is investigated by employing monthly stock indexes of the Group of Seven (G7) from March 1978 through December 1997 on Morgan Stanley's Capital International (MSCI) indices. This monthly time series data is used to estimate the vector error correction model of order two (VECM(2)). The joint cointegration tests show that (at p < 0.05) there is one common l(2) trend and two I(i) trends in the financial equity market returns of G7 countries. Potential explanations of these results and implications for portfolio diversification strategies are discussed.

Publication Date

2003

Comments

Note: imported from RIT’s Digital Media Library running on DSpace to RIT Scholar Works in February 2014.

Document Type

Article

Department, Program, or Center

Accounting (SCB)

Campus

RIT – Main Campus

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