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An Analysis of the Interrelationships Among the Major World Stock Exchanges
Author(s) -
MAKRIDAKIS SPYROS G.,
WHEELWRIGHT STEVEN C.
Publication year - 1974
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/j.1468-5957.1974.tb00859.x
Subject(s) - financial economics , diversification (marketing strategy) , economics , portfolio , equity (law) , stock (firearms) , ex ante , random walk hypothesis , econometrics , stock exchange , stock market , business , finance , geography , macroeconomics , marketing , political science , archaeology , law , context (archaeology)
The method of principal component is used in this paper to analyse the interrelationship among the world's major stock exchanges. The major finding is that the interrelationship is unstable over time. This finding proves that any ex ante prediction of price indices is impossible, and it suggests that the indices of world equity markets can move in a random walk fashion. The consequences to international portfolio diversification should be obvious.