یکپارچه سازی بین المللی بازار سهام در یک اقتصاد کوچک باز : ایرلند ژانویه 1990، دسامبر 2000

We examine the relationship between the Irish, German, UK and U.S. equity markets. Our main finding is that the Irish equity market depends heavily on trading activity in the other markets but not vice versa. Significant return and volatility spillover effects occur in the direction of, but not from, the Irish market. We also find that dual listing in the form of American Depositary Receipts (ADRs) has an important role to play in these spillover effects. Our findings obtain throughout the sample, but are strongest for the period after the ERM crises and before the introduction of the euro.

Ireland is recognized as a small open economy with a heavy reliance on external trade that has been increasing over time (EUROSTAT, 2000). The nature of Ireland's capital flows is less clear, however, and this paper addresses this subject by describing the bivariate interactions between the Irish equity market and the markets in Germany, the United Kingdom and the United States. Traditional strong interactions between the Irish and the UK markets for economic and political purposes may have been superseded by new relationships with the Eurozone-dominated German market and the globally dominant U.S. market. The literature provides some insights into the areas of investigation. Capital markets in general have been characterised by increased integration (Claessens & Forbes, 2001).1 Within this, the extent and speed of these interactions have also increased. Harmonisation of regulatory and market structures, and the removal of capital control barriers are driving forces in these increased market interactions. Market linkages are decomposed into short- and long-run components with strong support for the former and weaker evidence on the latter (Malliaris & Urrutia, 1992). These interactions have incorporated both return and volatility linkages in a time-varying fashion Bae & Karolyi, 1994 and King et al., 1995. Dual-listing equities also have an important influence on the time-varying interactions (Karolyi, 2002). The Irish equity market is small by international standards, with the majority of companies thinly traded and dominated in size by a few organizations. These latter equities have a dual listing with the American Depositary Receipts (ADR) programme being a popular mechanism. Accounting for these features, this paper examines market interactions during the 1990s by focusing on four issues: first, the long-run relationship between the markets; second, the dynamic relationship between them; third, the return and volatility transmission process between them; and fourth, the impact of dual listing with ADRs on the return and volatility linkages. We also break the full sample into a number of separate subperiods to discern whether our findings change as a result of key political and economic events. The paper proceeds as follows. In the next section, a discussion of related studies that model the Irish market is presented, coupled with an outline of the methodological framework. Section 3 describes the data and some preliminary findings. The main empirical results are discussed in Section 4. Finally, a summary and conclusions are given in Section 5.

This paper examines bivariate relations for the Irish equity market with the U.S., UK, and German markets. The long-run relation between the markets was first determined using correlation analysis and cointegration techniques. The dynamic relationship between the markets was then profiled using forecast variance decomposition and impulse response analysis. The linkages between the markets were then analysed using multivariate GARCH techniques. Finally, a case study approach was adopted to determine the role of dual listing with ADRs on the time-varying return and volatility linkages. Throughout our analysis, the impact of key economic and political events, namely, the period pre- and post-ERM crises and the period after the introduction of the euro was examined. Our main findings are that return interactions for the Irish equity market were strongest during the mid-1990s with the UK market having the dominant relation, and they were relatively weak for the other subperiods. Thus, overall support for a long-run relation, using cointegration techniques might be tenuous, and this might explain the inconsistent findings of previous studies. Variance decomposition findings indicate that the Irish equity market is heavily dependent on the activity of other markets, especially the U.S. market. In addition, impulse response analysis of innovations indicates a rapid speed of transmission for the ISEQ that tapers off quickly. Multivariate GARCH analysis points to significant return and volatility spillover effects to, but not from, the Irish equity market. These are strongest for the period post-ERM crises and before the introduction of the euro, with the U.S. and UK markets having a notable influence. The influence of the German market has risen over time, supporting greater integration of Eurozone markets. The role of dual listing for the return and spillover effects of the Irish equity market indicates a strong impact from U.S.-traded ADRs. These impacts are more pronounced than those emanating from our analysis using the indices. Overall, our analysis demonstrates significant interactions of a direction and magnitude that are expected in the context of a small open economy. Given the time-varying strength of the bivariate relationships, an interesting direction for future work would be to examine the impact of periods of trading turbulence on the interactions focusing on tail linkages.