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Determinants of stock market correlations : accounting for model uncertainty and reverse causality in a large panel setting
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Orientador(es)
Resumo(s)
We examine 22 determinants of stock market correlations in a panel setting with 651
country pairs of developed economies over the 2001-2018 period, while accounting for model
uncertainty and reverse causality. On the one hand, we find, that a number of determinants,
well established in the literature, e.g. trade, institutional distance, and exchange rate
volatility fail the robustness test. On the other hand, we find strong evidence supporting
several others: (1) inertia, with current correlation being the best single predictor of the
future stock market correlation (2) positive impact of the market size (3) imperative role of
the interconnected financial factors: capital mobility, financial development, and portfolio
equity flows. With the expected future growth of economies and their capital markets as
well as deepening financial liberalization, this paper brings strong support to the hypothesis
of diminishing international diversification potential.
Descrição
Palavras-chave
stock market correlations stock market comovement financial development Bayesian model averaging OECD countries
Contexto Educativo
Citação
Afonso, António, Krzysztof Beck e Karen Jackson (2022). "Determinants of stock market correlations : accounting for model uncertainty and reverse causality in a large panel setting". REM Working paper series, nº 0246/2022
Editora
ISEG - REM - Research in Economics and Mathematics