درباره ثبات روابط بلند مدت بین بازارهای نوظهور و بازارهای سهام آمریکا

While most studies have found no cointegration between emerging and US stock markets, some recent studies do find a long-run relationship exists between these markets. In view of these mixed findings, this study examines the stability of long-run relationships between a number of emerging stock markets and the US stock market using recursive cointegration analysis. The results show that no long-run relationship exists between emerging markets and the US market over most of the sample period throughout 1997. However, we do find clear evidence of cointegration in response to the recent global emerging market crisis in 1997–1998. We conclude that significant crisis events can change the degree of cointegration between international stock markets and, therefore, need to be taken into account in studies of long-run relationships between international stock markets.

Numerous studies have examined long-run cointegration relationships between emerging stock markets and the US stock market (for Asian countries see e.g. Chan et al., 1992, DeFusco et al., 1996, Ghosh et al., 1999, Sheng and Tu, 2000 and Darrat and Zhong, 2002; for Latin American countries see e.g. DeFusco et al., 1996 and Choudhry, 1997; and Soydemir, 2000).1 Cointegration between two stock markets suggests that these two markets are highly correlated in the long run and thus the long-run gains from international diversification across them will be slight (Taylor and Tonks, 1989, p.335–336; DeFusco et al., 1996, p. 344–345).2 Most of the above studies (e.g., Chan et al., 1992, DeFusco et al., 1996 and Soydemir, 2000) have found no long-run relationship (i.e., cointegration) to exist between emerging markets and the US market. This evidence implies that investors holding US stock portfolios can reap substantial diversification benefits from investing in emerging stocks markets. However, some recent studies (e.g., Ghosh et al., 1999, Sheng and Tu, 2000 and Darrat and Zhong, 2002) have reported evidence of cointegration. In view of these mixed findings, the present study considers the possibility of instability in long-run relationships between international stock market movements. To our knowledge no study has investigated the stability of long-run relationships between emerging and developed equity markets. 3 In this regard, recent work by Elyasiani and Kocagil (2001) has demonstrated that major events or policy changes can cause structural breaks in long-run relationships in foreign exchange markets. Specific factors, such as financial market liberalization ( Bekaert and Harvey, 2000), the 1987 stock market crash ( Arshanapalli et al., 1995), and the 1997–1998 global emerging stock market crash ( Ghosh et al., 1999) could cause shifts in long-run equity market relationships. To examine the stability of long-run relationships between emerging and U.S stock markets, we apply the relatively new technique of recursive cointegration ( Hansen and Johansen, 1993 and Hansen and Johansen, 1999). This technique enables us to test for the existence of cointegration relationships at each point of time during the sample periods 1976–2001 and 1985–2001. In brief, we find no cointegration between emerging and the US stock markets over the beginning of these sample periods to 1997, but clear evidence of cointegration between most emerging markets and the US markets in response to the global emerging market crisis in the period 1997–1998. This instability in the long-run relationship between stock markets helps reconcile the findings of no cointegration in earlier studies and the evidence of cointegration presented in some recent studies employing data covering this global event. Our results suggest that significant events can potentially cause structural breaks in cointegration tests of long-run stock market relationships, such that instability needs to be taken into account in studies of long-run relationships between financial markets. The organization of the paper is as follows. Section 2 overviews the methodology. Section 3 describes the data. Section 4 presents the empirical results. Section 5 provides a conclusion.

This paper examines the stability of long-run relationships between a number of emerging stock markets and the US by applying the relatively new technique of recursive cointegration analysis. In brief, the results clearly show that no long-run relationship exists between emerging stock markets and the US throughout most of the sample period until 1997. However, the existence of a long-run relationship with the US stock market is generally found for most countries during the 1997–1998 global emerging market crisis, in which one cointegrating vector is consistently found between most emerging market countries around the world and the US Extending previous work, our results shed light on the differential impacts of three important types of major events or policy changes on long-run stock market relationships: the 1987 crash, 1997–1998 crisis, and financial market liberalization. Consistent with Chan et al. (1997) but unlike Arshanapalli et al. (1995), we find that the 1987 crash had little impact on the long-run relationships between emerging and the US markets. Importantly, the 1997–1998 global emerging market crisis generally caused a strengthening in long-run stock market relationships, which contradicts the argument that this crisis only had temporary effects on global equity market relationships (Tuluca and Zwick, 2001). The differential impacts of these two crises are likely due in part to the different degrees of market opening of emerging markets between the late 1980s and the late1990s, as well as differences in the relative longevity of these two events. Furthermore, consistent with Bekaert and Harvey (2000), financial market liberalization is found to have little impact on the long-run relationships. In sum, based on these findings, we conclude that differential impacts of major market events on long-run stock market relationships are possible depending on the unique aspects of the events. An important implication of our results is that investors holding US stock portfolios can reap diversification benefits by purchasing stocks in emerging stock markets during the normal market conditions. However, around periods marked by major market events, such as the 1997–1998 global emerging market crisis, international diversification potential can be substantially reduced, as cointegration may occur during and after such an event. This finding is consistent with the argument that international diversification may not work well when its risk-reducing benefits are most desired (Bookstaber, 1997). Finally, our finding of recent instability in the long-run relationship between emerging and US stock markets helps reconcile the fact that earlier studies did not find cointegration but some recent studies that employ data covering the global emerging market crisis have reported evidence of cointegration. Consequently, an important implication of our results is that instability needs to be formally taken into account in time series studies of long-run relationships between financial markets.