Co-Movement of Emerging and Developed Market Indices

Abstract

The globe is considered to be a single economic unit because the cross-border movements are common. Financial markets are no exceptions as the flow of capital within different parts of the globe has been leading to the integration of global markets. This study examines the extent of interdependence of developed as well as emerging economies with the help of correlation coefficients associated with the co-movement of their stock markets on daily, weekly and monthly returns. The impact of LIBOR – a global macroeconomic variable, on the stock indices has also been examined. The results show that the correlation coefficients within as well between emerging and developed economies have been found to be high; indicating the extent of integration of global markets. Also, stock indices of developed countries move more in line with LIBOR in comparison to the emerging economies. The mean returns as well the volatility is higher and impact of LIBOR is lower in emerging economies than developed ones, making the emerging economies to be attractive destinations for investment.