What is the Degree of Convergence among Developed Equity Markets?

Abstract

The paper investigates the degree of sensitivity of international equity market returns, using MSCI indices as widely tracked global equity benchmarks of stock exchanges, traded throughout the world. In particular, using a time-varying methodology, the research examines whether the returns of developed international equity markets are each associated with movements of MSCI World Index in order to see the level of bilateral influence between equity markets, affected by globalization processes. The model contains the Kalman filter and, as a consequence, it accommodates fundamental shifts in the bilateral relationships. The results show that all analyzed developed equity markets are moving toward greater integration in terms of increasing correlation, they are interdependent and affected by globalization processes, showing strong and lasting relationships between each other. However, bilateral convergence of international equity markets is not an equal process, where different cluster of markets are engaged in different manners.