Impact of globalization on stock market synchronization: some empirical evidence

Abstract

Purpose

The main purpose of this paper is to examine the impact of globalization on the synchronization of international financial markets. Monthly data from January 1990 to July 2005 for ten major stock markets, namely, Australia, Canada, France, Germany, Hong Kong, Japan, Singapore, the UK, and the USA are used.

Design/methodology/approach

A battery of test procedures to determine the stationarity conditions of the data set is employed. The Johansen and Jsuelius method is used to test for the existence of long run equilibrium relationship among various markets. If a given market is found to be integrated of order one, it would imply that the market is weak‐form efficient. Similarly, if markets are collectively found to be cointegrated, this would suggest that globalization had a significant impact on international financial integration.

Findings

Results indicate that each market is weak‐form efficient. As such, price movement in every market is random and cannot be predicted. The tests produced a large number of cointegrating vectors which implied a strong long run relationship between all markets. Thus, globalization seems to have greatly impacted international financial integration.

Originality/value

The findings of this paper are expected to provide valuable insights into international portfolio diversification as an investment strategy.

Citation

Ansari, M. (2009), "Impact of globalization on stock market synchronization: some empirical evidence", International Journal of Commerce and Management, Vol. 19 No. 3, pp. 208-221. https://doi.org/10.1108/10569210910987985