Dynamic relations among international stock markets

In this paper, we employ a multiple hypotheses testing method to examine the short-term dynamic relations among international stock markets. The test procedure systematically examines all relevant hypotheses for the relations between markets. The test procedure also allows us to isolate the effect of a third market in determining the short-term dynamic relations between two specific markets. The results show that significant dynamic relations exist among four major international stock markets and these relations appear to have been strengthened considerably after 1987. Our analysis shows that the return correlation among markets is much higher in more recent years. We also find an asymmetry of cross auto-correlation among international market returns in that the returns of large markets lead the returns of small markets. Furthermore, the results show that the Japanese market has a fairly strong influence on other markets after the impact of the U.S. market is isolated.