Testing for international equity market integration using regime switching cointegration techniques [An article from: Review of Financial Economics]

This digital document is a journal article from Review of Financial Economics, published by Elsevier in 2006. The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.

Description:
Using MSCI total return index data, this paper analyses the degree of international equity market integration using modern cointegration techniques. The existence of a long run equilibrium across equity markets is important since it implies a violation of weak form market efficiency. Short run deviations away from equilibrium can be expected to reverse, thereby implying a degree of market predictability. This analysis adds to the existing literature by considering a regime switching cointegration relationship that allows for multiple structural breaks over time. The analysis provides scant evidence in favour of market integration with a single regime treatment. There is, however, significant evidence to support a two-regime Markov switching long-run equilibrium relationship that has evolved since the 1970s.