Linkages between the US and European Stock Markets: A Fractional Cointegration Approach
26 Pages Posted: 20 Mar 2015
Date Written: January 20, 2015
This paper analyses the long-memory properties of US and European stock indices, as well as their linkages, using fractional integration and fractional cointegration techniques. The empirical evidence suggests the presence of unit roots in both the S&P 500 Index and the Euro Stoxx 50 Index, and also that cointegration only holds over the subsample ending in March 2009, i.e. when the global financial crisis was still severe; subsequently, the US and European stock markets diverged and followed different recovery paths, possibly as a result of various factors such as diverging growth and monetary policy.
Keywords: Stock markets, linkages, fractional integration, fractional cointegration
JEL Classification: C32, G15
Suggested Citation: Suggested Citation