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RESEARCH PRODUCT

Information Flows Among the Major Stock Market Areas

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The relationship between the index returns of the major stock markets has been analysed in many papers. These studies usually examine lead–lag relationships between markets, without distinguishing the influencing ability and the sensitivity of each of the markets. Additionally, these studies use indices that are not directly comparable — either because of the way the indices are calculated or because of the number of companies and sectors used to construct them. This paper addresses both points. First, all the analyses have been made using homogeneous indices designed by Morgan Stanley Capital International. Secondly, the information flow has been studied by applying the model proposed by Piero et al. (1998). This model allows us to study the effective influence of one market on another by separating the capability to influence of the first and the sensitivity of the second. The obtained results indicate that during the period 1988–1993, the linkage among the major stocks markets were determined by the sensitivity of the market receiving the information; while in the period 1993–1998, the linkages are determined by the ability of the markets to influence others.