Kenjiro Hirayama

Threshold effect in international linkage of stock prices

Abstract This paper examines whether the international linkage of the stock price indexes found in previous studies is confirmed for the case where the stock index changes only slightly, utilizing the daily stock price index data from 1975 to 1995 for the US, UK, Germany, and Japan. Using dummy variables in the regressions, it is shown that small changes in the stock price index of any country do not affect the other countrys index. In contrast, large changes have a significant effect in most cases. Thus, there is a threshold effect in international linkage of stock prices. It is also shown that negative large changes have a clearer effect than positive ones.

Appropriate Lag Specification for Daily Responses of International Stock Markets

This paper explores the international linkage of stock prices, using daily stock price indices of the four major economies (USA, UK, Germany, and Japan) from June 1974 to December 1997. It is argued that previous studies have not estimated the structural equation system reflecting the sequential occurrence of market closing, which is crucial in investigating the characteristics of daily responses among international stock markets. By estimating the structural equation system, it is found that the most recent market has the strongest effect, except for the case of Japanese effects on the German market.

How Fast do Tokyo and New York Stock Exchanges Respond to Each Other? An Analysis with High-Frequency Data

This paper uses one-min returns on the TOPIX and S&P500 to examine the efficiency of the Tokyo and New York Stock Exchanges. Our major finding is that Tokyo completes reactions to New York within six min, but New York reacts within fourteen min. Dividing the sample period into three subperiods, we found that the response time has shortened and the magnitude of reaction has become larger over the period in both markets. The magnitude of response in New York to a fall in Tokyo is roughly double that of a rise.

International Stock Price Co-movement*

Two possible causes of international stock price co-movement are examined: the existence of global common shocks and portfolio adjustments by international investors. Empirical analyses indicate that the former explains a significant part of the co-movement and the latter is unlikely to play an important role. We extend the analysis to intra-day high-frequency data. For example, when the Tokyo Stock Exchange begins its daily trading at 9:00 A.M. Japan Standard Time (JST), stock prices in Tokyo exhibit responses to preceding changes in New York. An analysis with minute-byminute data indicates that Tokyos response to New York dissipates within about six minutes after opening. On the other hand, when the New York Stock Exchange (NYSE) opens at 9:30 A.M. Eastern Standard Time (EST), its response to Tokyo dissipates within 14 minutes. Thus, the movement of stock prices is transmitted rapidly across countries. Finally real-time simultaneous interactions between Shanghai (Shenzhen) and Tokyo are analyzed for a 30-minute period in the morning and a 60-minute period in the afternoon. Investors in Tokyo are watching stock prices in Shanghai, but not vice versa. Tight regulations on Chinese investors to prevent them from holding foreign stocks may be the reason why they do not pay any attention to stock price movements in Tokyo.