Financial Integration with Emerging Markets: An American Perspective

Abstract

In this study, we examine the patterns and causes of stock market integration of twelve emerging markets against the US market, for the period January 2005 to January 2020. We compare patterns of market integration for countries on a monthly basis using the time-varying correlation technique, namely, GARCH-dynamic conditional correlations (DCCs). In doing so, we suggest that opportunities in cross border investment vary by frequencies. We also divide daily data into subsamples and find that correlations were strongest during the global financial crisis (GFC) of 2007–09. The time varying bilateral correlations are found to be highly volatile. We also investigate the causes of identified correlations and find that the underlying economic and financial conditions (exchange rate volatility, interest rate spread, trade openness and capitalization market) have also been responsible for the higher correlations between these stock markets.