A gravity analysis of international stock market linkages

Terence Tai Leung Chong, Wing Keung WONG, Juan Zhang

Research output: Contribution to journalArticlepeer-review

4 Citations (Scopus)

Abstract

The last decade has witnessed a marked improvement in information technology. Such an improvement has reduced the information cost for market participants. Thus, whether the influence of geographic factors on international financial linkage is still significant nowadays is an important question yet to be addressed. This article develops a gravity model of international financial linkages. Using the panel data of bilateral crosscountry stock market correlations of 23 countries, it is found that the correlations are negatively associated with the Great Circular Distance (GCD) between the financial centres of these countries and positively associated with the duration of overlapping trading hours among stock exchanges and the colonial links between countries. However, whether the countries share a common border or language does not affect the stock market correlations.

Original languageEnglish
Pages (from-to)1315-1319
Number of pages5
JournalApplied Economics Letters
Volume18
Issue number14
DOIs
Publication statusPublished - Sep 2011

Scopus Subject Areas

  • Economics and Econometrics

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