Interdependence between the world stock markets: An analysis of volatility

Abstract

This study aims to verify the existence of causality and interdependence between the different volatilities of world stock indices. The five major indices of stock exchanges in the global scenario besides Ibovespa were evaluated: Dow Jones Industrial Average, Nasdaq Composite Index, Nikkei-225, Standard & Poor’s 500 and Financial Times Stock Exchange. We used the methodology of time series with stationary tests of Dickey-Fuller (ADF) and KPSS Granger causality for the series of indices. The results indicate that the contents do not have any tendency. They behave in the same level, with an average constant over time. Moreover, the observed changes in the Ibovespa volatility do not cause any interference in the U.S. Dow Jones index and S&P500. In the opposite direction, analyzing the causality of global markets on Ibovespa, this study showed that the volatility of Nasdaq, S&P500 and Nikkei do not cause changes in the Ibovespa volatility, without any kind of interdependence between these indices. However, there is a relationship between the volatilities of Dow Jones and the Financial Times on Ibovespa. The highlighted results largely corroborate those reported in the literature on the subject, but differ from studies that detected a wide and important influence of the stock market indices of the USA over the Brazilian.

Keywords: interdependence, stock market, volatility Garman-Klass.