STOCK-MARKET LINKAGES: EVIDENCE FROM THE MAJOR FOREIGN EXCHANGE MARKETS

The main aim of this paper is to investigate the stock-market linkages between the five most regularly quoted stock market indices and to explain how the cross-market linkages have changed over time including crisis and non-crisis periods. By studying the time-series properties of the American S&P 500, the Japanese Nikkei 225, the British FTSE 100, the German DAX 30 and the European EURO STOXX 50 we find that these leading Blue-chip indexes are significantly correlated based on the parametric and non parametric correlation analysis and normality tests almost for the full sample. Empirical results report statistically significant positive correlations between the pairs of indices over the last fifteen-year period at the 95.0% confidence level. However, the strength of the relations between the pairs of indices varied in the researched years. These conclusions were reached from the correlation analysis of monthly indices relative returns from February 01 1999 to January 01 2015. The empirical evidence from the cross asset markets confirm the basic findings and are beneficial for policy-makers, shareholders and traders. In particular, the results are useful in the areas of global tactical asset allocation, evaluation of business cycles and trend analysis.