Macroeconomic determinants of long-term stock market comovements among major EMS countries

Long-term comovements of national stock markets in three EMS (European Monetary System) countries - France, Germany and Italy - are examined. The EMS stock markets are found to display long-term comovements governed by two common permanent components. To identify some interpretable sources of such l...

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Bibliographic Details
Published in:Applied financial economics 1999-02, Vol.9 (1), p.73-85
Main Authors: CHEUNG, YIN-WONG, LAI, KON S.
Format: Article
Language:English
Subjects:
Europe
European Monetary System
European Monetary Union
Industrial production
Macroeconomics
Money supply
Movement
Securities markets
Stock exchange
Stock exchanges
Stock prices
Studies
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Summary:Long-term comovements of national stock markets in three EMS (European Monetary System) countries - France, Germany and Italy - are examined. The EMS stock markets are found to display long-term comovements governed by two common permanent components. To identify some interpretable sources of such long-term market comovements, the study explores whether they can be linked to similar comovements in macroeconomic variables, including the money supply, dividends and industrial production. Like stock prices, two common permanent components are found driving the comovements in each of these variables. Further analysis suggests that the long-term comovements in stock prices can be partly attributable to those in the macroeconomic variables, especially for the post-1987 period. The results confirm at least a limited role of these macroeconomic variables in accounting for the stock market comovements among the EMS countries.
ISSN:0960-3107
1466-4305
DOI:10.1080/096031099332546