Knif, Johan and Seppo Pynnonen (1999). Local and global price memory of international stock markets. Journal of International Financial Markets, Institutions & Money 9, 129--147.

ABSTRACT

The prime focus of the paper is on the impact of the world's leading markets (USA, Japan, Hong Kong, UK, France, Switzerland and Germany) on the returns of the small Nordic markets (Denmark, Finland, Norway and Sweden). The order and the degree of processing both 'local' and 'global' information are uncovered using a combination of cointegration analysis and structural VAR modeling utilizing daily index returns. The results indicate that the US price changes, conditioned on the same day changes on the other markets, have an impact on all other markets during the following day, including the US market itself. 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, a cointegration relationship between Sweden and Norway is found, which affects also Finland.

JEL classification: G15, C32

Keywords: Short-term dynamics, Cointegration, Stock markets