Increasing integration between the United States and other international stock markets? A recursive cointegration analysis

This paper examines whether long-run integration between the United States and many international stock markets has strengthened over time, with special attention paid to the impact of the abolition of capital control in these markets and the 1987 international stock market crash. The results show that during most of the thirty-two-year sample period (January 1970-December 2001), there exists no long-run relationship between most of these markets and the United States. However there is evidence of recent increasing integration between many smaller markets and the United States while no such pattern emerges for larger markets including Japan, the United Kingdom, and Germany, which suggests long-run benefits to U. S. investors of diversifying into these larger markets. Moreover there is no marked change in the degree of integration between any of these stock markets and the United States that can be apparently associated with the abolition of capital control or the 1987 international stock market crash.