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COINTEGRATION OF STOCK MARKETS BETWEEN NEW ZEALAND, AUSTRALIA AND THE G7 ECONOMIES: SEARCHING FOR CO‐MOVEMENT UNDER STRUCTURAL CHANGE
Author(s) -
NARAYAN PARESH KUMAR,
SMYTH RUSSELL
Publication year - 2005
Publication title -
australian economic papers
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.351
H-Index - 15
eISSN - 1467-8454
pISSN - 0004-900X
DOI - 10.1111/j.1467-8454.2005.00262.x
Subject(s) - cointegration , equity (law) , stock market , economics , stock (firearms) , financial economics , diversification (marketing strategy) , market depth , primary market , stock market bubble , business , econometrics , geography , context (archaeology) , archaeology , marketing , political science , law
This paper examines whether the New Zealand equity market is integrated with the equity markets of Australia and the G7 economies by applying both the Johansen (1988) and Gregory and Hansen (1996) approaches to cointegration. The Johansen (1988) test suggests that there is no long‐run relationship between the New Zealand stock market and any of the other stock markets considered in the study. The Gregory and Hansen (1996) test finds that the New Zealand and United States stock market is cointegrated, but the New Zealand stock market is not cointegrated with the other stock markets in the study. This suggests that in order to avoid some of the risk through international portfolio diversification there is potential for investors to purchase shares in the New Zealand market and either the Australian market or most of the world's leading equity markets.