Interdependence of stock exchange indices from leading capital markets: USA, Germany and Japan Stock Market

  • Milena Marjanović Academy of Professional Studies South Serbia, Department of Business Studies Leskovac, Serbia
  • Ivan Mihailovic Academy of Professional Studies South Serbia, Department of Business Studies Leskovac, Serbia
  • Ognjen Dimitrijević Academy of Professional Studies South Serbia, Department of Business Studies Leskovac, Serbia
Keywords: vector autoregressive model, cointegration, causality, stock exchange indices

Abstract

In the context of globalization, due to the accelerated process of economic integration of countries and financial markets, the interdependence of the world's leading financial markets is more than obvious. This paper investigates the interdependence of stock exchange indices from leading capital markets in the world: USA, European Union and Asia. Our intention is to determine the direction of causality between the observed capital markets, as well as whether and in what way shocks in one market are transmitted to other markets. Research methodology includes stationarity testing, the existence of cointegration, the application of the Vector Autoregressive Model (VAR) which is complemented by the Granger causality test and the Impulse Response Function (IRF) analysis. The results of the research are as follows. Johansen's cointegration test showed that there is no long-term equilibrium relationship between the observed markets, while Granger's test showed that there is mutual causality between the capital markets of Germany and the United States. As for the Japanese index, previous events in Germany and the United States are statistically significant, but previous events on the Tokyo Stock Exchange cannot explain movements in Germany and the United States. According to the results of the IRF analysis,  shocks that may occur in the US market have an almost identical impact on all observed markets. On the other hand, disturbances on the Japanese market are not transmitted to the German and American market, ie. remain in Japan.

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Published
2021-06-30
How to Cite
Marjanović, M., Mihailovic, I., & Dimitrijević, O. (2021). Interdependence of stock exchange indices from leading capital markets: USA, Germany and Japan Stock Market. BizInfo (Blace) Journal of Economics, Management and Informatics, 12(1), 15-28. https://doi.org/10.5937/bizinfo2101015M