Knif, Johan and Seppo Pynnonen (1997). Local and global price memory of international stock markets. Proceeding of the University of Vaasa. Discussion Papers 213.

Abstract
This paper reports an empirical study conducted to determine relationships between national stock markets and the impact of the world's leading markets (USA, Japan, Hong Kong, UK, France, Switzerland and Germany) on the returns of small Nordic markets (Denmark, Finland, Norway and Sweden). The order and the degree of processing both 'local' and 'global' information are investigated using a combination of cointegration analysis and structural VAR-modeling of daily returns covering the period from September 1993 to August 1996. Adjusting for the effect of mismatch in opening hours of the different markets, we arrive at the following results. Firstly, the US price changes, conditioned on the same day changes on the other markets, will have an impact on all other markets during the following day, including the US market itself. Secondly, price changes on the Asian-Pacific markets are completely absorbed in price changes in Europe and do not have any direct effect on US prices. Finally, one long-run cointegration relationship is found between the markets, which proves to be a relationship between Sweden and Norway. Of the Nordic markets, Finland, Norway and Sweden are sensitive to deviations from this long-run relation, but Denmark and the other European as well as USA and Asian-Pacific markets are not.