Journal of Finance and Investment Analysis

An Econometric Analysis on Influential Power Across Global Stock Markets

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  • Abstract 

    Global stock markets are considered to be more integrated than ever and having impacts on each other. By utilizing the VAR model and the corresponding impulse response functions (IRFs), this research paper constructs the “Influence Index” to quantify and order the influential power for major stock markets across the globe. Statistical evidences show that the U.S. stock market dominates the global markets by achieving the highest influence index of 3.18, followed by Australia (1.85) and Britain (1.12). However, stock markets housed in developing economies show very weak influential power, which could be due to the lack of international recognitions and market establishment. Stock markets in China and Argentina possess the lowest and the second lowest market power with influence index of only 0.26 and 0.28 respectively. Corresponding evidences also offer an important indication that established markets are much less sensitive to impacts generated from other markets, while developing markets are more prone to outside influences.

    JEL classification numbers: G12; G14; G17
    Keywords: Global Stock Markets, Market Power, Influence Index