Comovements in National Stock Market Returns: Evidence of Predictability But Not Cointegration

April 1, 1996

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Format: Chicago

Anthony J. Richards Comovements in National Stock Market Returns: Evidence of Predictability But Not Cointegration, (USA: International Monetary Fund, 1996) accessed November 23, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper is a response to the literature that tests for cointegration between national stock market indices. It argues that apparent findings of cointegration in other studies may often be due to the use of asymptotic, rather than small-sample, critical values. In fact, economic theory suggests that cointegration is unlikely to be observed in efficient markets. However, this paper finds some evidence for the long-horizon predictability of relative returns, and the existence of “winner-loser” reversals across 16 national equity markets. A conclusion is that national stock market indices include a common world component and two country-specific components, one permanent and one transitory.

Subject: Asset prices, Econometric analysis, Financial institutions, Financial markets, Price indexes, Prices, Stock markets, Stocks, Vector autoregression

Keywords: Asset prices, Expected return, Mean reversion, Price indexes, Return index, Return indices, Stock markets, Stocks, Test statistics, Time series, Total return, Vector autoregression, WP

Publication Details

Pages:

30
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1996/028
Stock No:

WPIEA0281996
ISBN:

9781451844610
ISSN:

1018-5941

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