International Stock Market Linkage: Evidence on the Sector Level

This paper investigates the international transmission structure of each industrial sector returns in the eight major stock markets by estimating a vector error correction model (VECM). Cointegration tests detect the stationary long-run equilibrium among industrial sector indices. Variance decomposition analysis and impulse response analysis indicate that global stock markets have strong interactions each other on the individual industry level. Regression analysis indicates that the greater the global market value ratio (GMVRatio) the heavier the impact of the innovations to other stock markets.