Interdependence of stock exchange indices from leading capital markets: USA, Germany and Japan Stock Market

  • Milena Marjanović Academy of Professional Studies South Serbia, Department of Business Studies Leskovac, Serbia
  • Ivan Mihailovic Academy of Professional Studies South Serbia, Department of Business Studies Leskovac, Serbia
  • Ognjen Dimitrijević Academy of Professional Studies South Serbia, Department of Business Studies Leskovac, Serbia
Keywords: vector autoregressive model, cointegration, causality, stock exchange indices


In the context of globalization, due to the accelerated process of economic integration of countries and financial markets, the interdependence of the world's leading financial markets is more than obvious. This paper investigates the interdependence of stock exchange indices from leading capital markets in the world: USA, European Union and Asia. Our intention is to determine the direction of causality between the observed capital markets, as well as whether and in what way shocks in one market are transmitted to other markets. Research methodology includes stationarity testing, the existence of cointegration, the application of the Vector Autoregressive Model (VAR) which is complemented by the Granger causality test and the Impulse Response Function (IRF) analysis. The results of the research are as follows. Johansen's cointegration test showed that there is no long-term equilibrium relationship between the observed markets, while Granger's test showed that there is mutual causality between the capital markets of Germany and the United States. As for the Japanese index, previous events in Germany and the United States are statistically significant, but previous events on the Tokyo Stock Exchange cannot explain movements in Germany and the United States. According to the results of the IRF analysis,  shocks that may occur in the US market have an almost identical impact on all observed markets. On the other hand, disturbances on the Japanese market are not transmitted to the German and American market, ie. remain in Japan.


Download data is not yet available.


Akaike, H., (1974). A new look at the statistical model identification, IEEE Transactions on Automatic Control, 19(6), 716–723.

Aloy, M., Boutahar, M., Gente, K., & Péguin-Feissolle, A. (2013). Long-run relationships between international stock prices: further evidence from fractional cointegration tests, Applied Economics, 45(7), 817-828.

Aloy, M., Boutahar, M., Gente, K., & Peguin-Feissolle, A. (2010). Fractional integration and cointegration in stock prices and exchange rates. Economics Bulletin, AccessEcon, 30(1), 115-129.

An Li., (2010). Equity market integration between the US and BRIC countries: Evidence from unit root and cointegration test. Research Journal of International Studies, 16, 15-24.

Assidenou, K. E., (2011). Cointegration of Major Stock Market Indices during the 2008 Global Financial Distress. International Journal of Economics and Finance. 3(2), 212-222.

Balios, D., & Xanthakis M. (2003). International interdependence and dynamic linkages between developed stock markets, South Eastern Europe Journal of Economics, 1, 105-130.

Blackman, S. C., Holden, K., & Thomas, W. A., (1994). Long term relationships between international share prices. Applied Financial Economics, 4, 297-304.

Breusch, S.T., & Pagan, R.A. (1980). The Lagrange Multiplier Test and its Applications to Model Specification in Econometrics. The Review of Economic Studies, 47(1), 239–253.

Dasgupta, R., (2013). BRIC and US Integration and Dynamic Linkages: An Empirical Study for International Diversification Strategy. Interdisciplinary Journal of Contemporary Research in Business, 5(7), 536-563

Dickey, D.A. & Fuller, W.A. (1979). Distribution of the Estimators for Autoregressive Time Series with a Unit Root. Journal of the American Statistical Association, 74(366), 427–431

Engle, R. F., & Granger, C. W. J., (1987). Co-integration and error correction: Representation, estimation and testing, Econometrica. 55(2), 251-276,

Eryiğit, M., & Öget, E., (2015). Causality Relationships Between BIST100 and Some Developed Stock Market Indices, Conference on Economics, Management and Marketing, Proceedings of MAC-EMM 2015, (1st ed.). MAC Prague consulting Ltd.

Ghulam, S., (2014). US stock market uncertainty and cross-market European stock returns. Journal of Multinational Financial Management, 28, 1–14.

Glezakos, M., Merika, A., & Kaligosfiris, H. (2007). Interdependence of major world stock exchanges: How is the Athens stock exchange affected, International Research Journal of Finance and Economics, 7, 23-39

Granger, C.W.J. (1969). Investigating Causal Relations by Econometric Models and Cross-Spectral Methods. Econometrica, 37(3), 424–438,

Hilliard, J.E. (1979). The Relationship Between Equity Indices on World Exchanges. The Journal of Finance, 34, 103-114.

Johansen, S., (1991), Estimation and hypothesis testing of cointegrating vectors in Gaussian vector autoregressive models, Econometrica, 59(6), 1551-1580,

Johansen, S., Juselius, K. (1990). Maximum Likelihood Estimation and Inferences on Cointegration—with applications to the demand for money. Oxford Bulletin of Economics and Statistics, 52(2), 169–210,

Ibicioglu, M., Kapusuzoglu, A. (2011). An Empirical Analysis on the Integration of the Stock Exchanges of the Ise with those of European Union Mediterranean Countries. Anadolu University Journal of Social Sciences, Anadolu University, 11(3), 85-102

Karolyi, A., & Stulz, R. M., (1996), Why Do Markets Move Together? An Investigation of US Japan Stock Return Co-movements. Journal of Finance, 51(3), 951-986,

Kasa, K. (1992). Common schochestic trends in international stock markets. Journal of Monetary Economics, 29, 95-124

Khan, T. A. (2011). Cointegration of International Stock Markets: An Investigation of Diversification Opportunities, Undergraduate Economic Review, 8(1).

Kozhan, R. (2021, February 6), Financial Econometrics – With Eviews

Lessard, D. (1973). International Portfolio Diversification: A multivariate analysis for a group of Latin American Countries. Journal of Finance, 28, 619-37

Lütkepohl, H. (1991). Introduction to Multiple Time Series Analysis. Springer-Verlag.

Makridakis, S.G., & Wheelwright, S.C. (1974). An Analysis of the Interrelationships Among the Major World Stock Exchanges. Journal of Business Finance & Accounting, 1: 195-215.

Maldanado, R., & Saunders, A. (1981). International portfolio diversification and the inter-temporal stability of international stock market relationships. Financial Management, 10, 54-63.

Mills, T. C., & Markellos, R. N. (2008). The Econometric Modelling of Financial Time Series. Cambridge University Press.

Mladenović, Z., Nojković, A. (2012). Primenjena analiza vremenskih serija. Centar za izdavačku delatnost Ekonomskog fakulteta u Beogradu

Nafeesa, Y., (2013). Contagion in international financial markets: A recursive cointegration approach. Journal of Multinational Financial Management, 23, 327–337.

Ouattara, B. S., (2017). Re-Examining Stock Market Integration Among BRICS Countries. Eurasian Journal of Economics and Finance, 5(3), 109-132.

Ripley, D. (1973). Systematic Elements in the Linkage of National Stock Market Indices. Review of Economics and Statistics, 55, 356-61.

Roca, E. D. (1999). Short-term and long-term price linkages between the equity markets of Australia and its major trading partners. Applied Financial Economics, 9(5), 501-511.

Von Furstenberg, & G., Jeon, B. (1989). International Stock Price Movements: Links and Messages. Brookings Papers on Economic Activity, 20(1), 125-180

Wu, C., Su, Y.C. (1998). Dynamic Relations among International Stock Markets, International Review of Economics and Finance, Vol. 7, 63–84,

How to Cite
Marjanović, M., Mihailovic, I., & Dimitrijević, O. (2021). Interdependence of stock exchange indices from leading capital markets: USA, Germany and Japan Stock Market. BizInfo (Blace) Journal of Economics, Management and Informatics, 12(1), 15-28.