2015-06: Stock market interdependence between Australia and its trading partners: does trade intensity matter? (Working paper)

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Paramati, Sudharshan Reddy RR.
Gupta, Rakesh
Roca, Eduardo
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Neupane, Suman

Roca, Eduardo

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2015
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35 pages

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Abstract

We investigate the extent and manner of stock market interdependence between Australia and its trading partners and examine whether this is affected by trade intensity. Based on trade intensity, we classify Australia's trading partners into major, medium and minor. We hypothesise that markets with greater (lower) trade intensity will be more (less) interdependent with Australia. We perform correlation (unconditional and conditional) analyses between Australia and its trading partners. Results indicate that most of the markets which are highly correlated with Australia are its major trading partners. We conduct panel regression analysis to investigate whether trade intensity has any impact on the stock market correlations between Australia and its trading partners. The results show that trade intensity significantly and positively affect the correlations of Australia with its major trading partners. Thus, the results confirm our hypothesis that trade intensity drives stock market interdependence between Australia and its trading partners.

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Copyright © 2010 by author(s). No part of this paper may be reproduced in any form, or stored in a retrieval system, without prior permission of the author(s).

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Finance

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G15 - International Financial Markets

G01 - Financial Crises

C32 - Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models

Bilateral trade linkages

stock market interdependence

AGDCC GARCH models

time series models

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