Time-varying Stock Market Integration and Diversification Opportunities within Developed Markets Using Aggregated Data Approach.

Abstract

This study has examined time-varying features of the developed stock market and diversification opportunities. The study has collected data from 21 developed countries ranging from 2000-2018 from the Pacific Region, Northern Europe, Western Europe, Southern Europe, and G7. The study has developed five panels, and each panel has included one home country and the remaining countries of that panel. We applied panel co-integration and VECM to test the stock market integration and diversification opportunities in the short and long run. Our results indicate few short and long-run diversification opportunities for international investors in the post-crisis period that are more relevant. Canada, Japan, and Italy have long-run opportunities for diversification in the G7, and only Japan has short-run opportunities for diversification. Hong Kong and Japan have short-and long-run opportunities for diversification in the Pacific region. At the same time, we found short-run diversification options for the UK and Norway in Northern Europe. In the Western European Region, Australia and Switzerland have long-term diversification. There were no long and short-run diversification opportunities in the Southern European Region in the post-crisis period.

Keywords

• stock market integration
• diversification opportunities
• developed markets