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Why do markets move together? An investigation of U.S.-Japan stock return comovements

By G. A. Karolyi and René M. Stulz

Abstract

This study explores the fundamental factors that affect cross-country stock return correlations. Using transactions data from 1988 to 1992, we construct overnight and intraday returns for a portfolio of Japanese stocks using their NYSE-traded American Depository Receipts (ADRs) and a matched-sample portfolio of U.S. stocks. We find that U.S. macroeconomic announcements, shocks to the Yen/Dollar foreign exchange rate and Treasury bill returns, and industry effects have no measurable influence on U.S. and Japanese return correlations. However, large shocks to broad-based market indices (Nikkei Stock Average and Standard and Poor's 500 Stock Index) positively impact both the magnitude and persistence of the return correlations

Topics: Economics, Commerce
Publisher: Center on Japanese Economy and Business, Graduate School of Business, Columbia University
Year: 1996
DOI identifier: 10.7916/D87P95W7
OAI identifier: oai:academiccommons.columbia.edu:10.7916/D87P95W7

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