IMF Working Papers

International Integration of Equity Markets and Contagion Effects

Author/Editor:

Paul Cashin ; Manmohan S. Kumar ; C. John McDermott

Publication Date:

November 1, 1995

Summary:

This paper investigates empirically the degree of international integration of industrial and emerging country equity markets. It analyzes two issues: first, the extent to which equity prices have tended to move similarly across countries and regions in the long run; and second, the strength of cross-country “contagion” effects. The paper’s findings suggest that both intra-regional and inter-regional linkages across national equity markets have strengthened in recent years. In addition, using impulse response functions, the paper shows that cross-country contagion effects of country-specific shocks dissipate in a matter of weeks while contagion effects of global shocks take several months to unwind themselves.

Series:

Working Paper No. 1995/110

Subject:

Asset prices Emerging and frontier financial markets Financial institutions Financial markets Price indexes Prices Stock markets Stocks