Dynamic analysis of time-varying correlations and cointegration relationship between Australia and frontier equity markets

Sudharshan Reddy Paramati, Rakesh Gupta, Kishore Tandon

    Research output: Contribution to journalArticlepeer-review

    Abstract

    This paper aims to demonstrate to what extent Australian stock market is correlated with those of 18 frontier markets of five different regions. We also investigate the long-run relationship between these markets. Empirical results of AGDCC GARCH model reveal that the correlations of Australian stock market with those of frontier markets are changing over time. Results show that Australia has weak correlations with all the frontier markets that are considered. Further, our analysis confirms that the effect of the GFC on stock markets' interdependence is limited to only few markets. The cointegration test results display that there is no evidence of long-run relationship between Australia and frontier markets. Empirical findings of our study suggest that Australian stock market is weakly correlated with those of frontier markets. Therefore, our study findings suggest that the Australian investors can diversify their portfolios into these frontier markets for gaining higher risk-adjusted returns.
    Original languageEnglish
    Pages (from-to)121-145
    Number of pages25
    JournalInternational Journal of Business and Emerging Markets
    Volume8
    Issue number2
    Early online date17 May 2016
    DOIs
    Publication statusPublished - 2016

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