Financial Integration : a New Methodology and an Illustration.

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Bibliographic Details
Author / Creator:Rose, Andrew K., author.
Imprint:Washington : International Monetary Fund, June 2004.
Description:1 online resource (31 pages)
Language:English
Subject:Stocks -- Prices -- Econometric models.
Stocks -- Rate of return -- Econometric models.
Electronic books.
Format: E-Resource Book
URL for this record:http://pi.lib.uchicago.edu/1001/cat/bib/12503219
Hidden Bibliographic Details
Other authors / contributors:Flood, Robert P., author.
ISBN:9781451898903
1451898908
Summary:Annotation This paper develops a simple methodology to test for asset integration, and applies it within and between American stock markets. Our technique relies on estimating and comparing expected risk-free rates across assets. Expected risk-free rates are allowed to vary freely over time, constrained only by the fact that they must be equal across (risk-adjusted) assets in well integrated markets. Assets are allowed to have standard risk characteristics, and are constrained by a factor model of covariances over short time periods. We find that implied expected risk-free rates vary dramatically over time, unlike short interest rates. Further, internal integration in the S & P 500 market is never rejected and is generally not rejected in the NASDAQ. Integration between the NASDAQ and the S & P, however, is always rejected dramatically.