THE FACTORS THAT AFFECT STOCK MARKET CO-MOVEMENTS ACROSS THE GLOBE

Peer reviewed: 
No, item is not peer reviewed.
Scholarly level: 
Graduate student (Masters)
Date created: 
2019-12
Keywords: 
International stock market returns
US stock market returns
Co-movement
Correlation
Weekend Effect
2008 financial crisis
Abstract: 

This paper attempts to explain the extent to which international stock market returns correlate with US stock market returns of the previous day. The purpose of this study is to confirm the expected positive correlation in co-movement between the US and non-US stock markets, and the extent to which this positive correlation is related to the time lag between the US market closing time (the previous day) and the non-US country’s opening time; as well as the type of legal system, the dominant language, and the state of development of the non-US country. The paper also attempts to explain how this relationship would hold in the case there is a weekend in between the close of the US stock market and the opening of the non-US stock market, and during the 2008 financial crisis. We find that US stock market returns are a significant predictor for non-US market returns on the following trading-day and that developed economies and countries with English as the dominant language are more highly correlated. Markets that are further away from the US and that have a common law legal system are inversely are less correlated than those that don’t. Additionally, we find that when there is a weekend between the US closing and non-US opening, the returns have a weaker correlation. Finally, during the 2008 financial crisis, developed economies were more highly correlated with US stock market returns on the previous trading-day than the others.

Description: 

MSc in Finance Project-Simon Fraser University

Language: 
English
Document type: 
Graduating extended essay / Research project
Rights: 
Copyright remains with the author.
File(s): 
Senior supervisor: 
Dr. Amir Rubin
Department: 
Beedie School of Business-Segal Graduate School
Statistics: