Integration of stock markets using autoregressive distributed lag bounds test approach

Title: Integration of stock markets using autoregressive distributed lag bounds test approach

Publication: Global Business and Economics Review, Vol. 26, No. 1, 2022

Author: Prof. Nikunj Patel and Prof. Bhavesh Patel

Abstract: Financial integration plays a decisive role to the institutional investors for diversification of their investment portfolio(s). This research investigates the integration of selected stock markets (India, Australia, China, Spain, UK, and the USA) from different continents that are highly affected by COVID-19, employing the autoregressive distributed lag approach using daily data from 2 January 2011 to 7 May 2020. The outcomes show evidence of long and short-run integration among the markets. The rest of the markets are co-integrated with the markets of India, China, and UK. India has a long-run equilibrium with the USA and Spain, whereas China has a long-run association with Spain, and the UK has a long-run association with the USA. In short-run, India is positively influenced by the returns of rest of the markets, whereas all the markets under the study except USA influence China. Further, the UK’s market is significantly inclined negatively by its own past innovations.

Keywords: COVID-19; stock market integration; cointegration; autoregressive
distributed lag; ARDL; bounds testing; USA; UK; structural breaks.

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