CO-MOVEMENTS OF STOCK PRICES : ASIAN AND U.S. MARKETS

Abstract

Recently, much interests have been generated after the stock markets crash in 1987 to study the relationships among markets. The conventional belief of independence among stock markets is put into question with the close relationships of the markets during the crash, which affected the gains from diversification. This exercise sets out to investigate the relationships among the four stock markets, namely, Hong Kong, Japan, U.S. and Singapore using the Full Historical Model in calculating their correlation coefficients. Furthermore, the stationarity of these correlations is also investigated as the level of stability will help the investors to select an optimal ex ante investment strategy. The data used were daily prices of major indices of these countries from 2 November, 1987 through 29 December, 1989. The results of this study show that there is a significant correlation among the markets, with the exception of Japan. Also, all the markets correlation coefficients are unstable except for Japan.