BPEA | 1989 No. 1

International Stock Price Movements: Links and Messages

Discussants: N. Gregory Mankiw and
N. Gregory Mankiw Robert M. Beren Professor of Economics - Harvard University
Robert J. Shiller
Robert J. Shiller
Robert J. Shiller Sterling Professor of Economics - Yale University

1989, No. 1

SINCE THE BEGINNING of 1986, the major stock markets have become increasingly internationalized by deregulation. By 1987 some 600 foreign stocks traded in the New York market, and the markets in London, Frankfurt, and Tokyo had also attracted numerous foreign listings. Some analysts worried that the growing international integration of financial markets could help transfer national financial disturbances to other markets. The spectacle, in October of 1987, of nearly simultaneous price collapses around the world was evidence to the point. In this paper we analyze the daily movements in the stock price indexes, from close to close, of the United States, Japan, Great Britain, and Germany during 1986-88, focusing particularly on the correlation of price movements in these, the world’s four largest equity markets.