Financial Integration : A New Methodology and an Illustration / Robert P. Flood and Andrew K. Rose.

Format:

Book

Author/Creator:

Flood, Robert P., author.

Rose, Andrew K., author.

Series:

Working Paper Series (National Bureau of Economic Research) ; no. w9880.

NBER working paper series ; no. w9880

Language:

English

Subjects (All):

Stocks--Prices.

Stocks.

Stocks--Rate of return.

Physical Description:

1 online resource (21 pages) : illustrations (black and white).

Place of Publication:

Cambridge, Massachusetts : National Bureau of Economic Research, 2003.

Summary:

This paper develops a simple new methodology to test for asset integration and applies it within and between American stock markets. Our technique is tightly based on a general intertemporal asset-pricing model, and relies on estimating and comparing expected risk-free rates across assets. Expected risk-free rates are allowed to vary freely over time, constrained only by the fact that they are equal across (risk-adjusted) assets. Assets are allowed to have general risk characteristics, and are constrained only by a factor model of covariances over short time periods. The technique is undemanding in terms of both data and estimation. We find that expected risk-free rates vary dramatically over time, unlike short interest rates. Further, the S&P 500 market seems to be well integrated, and the NASDAQ is generally (but not always) integrated. However, the NASDAQ is poorly integrated with the S&P 500.

Notes:

Description based on publisher supplied metadata and other sources.