Exploring the correlation dynamics of world stock market indices from 1992-2007
Many portfolios diversify by including mutual funds and exchange traded funds counting equities linked to various world country market indices, e.g. the S&P 500 of the United States and the Nikkei 225 of Japan. However a necessary condition for an international portfolio to be beneficial is that the correlation of returns between markets be low or at least non unity. My thesis will explore through extensive correlation analyses how advanced and emerging country indices are interrelated.
The inspiration for my thesis came from the dissertation of Yale Ph.D. Graduate Charles H. Yang's research published in 1999, Essays on International Market Correlations. Yang tested correlation market data from 1972-1997 and found in 16 advanced country indices that the markets were becoming steadily and increasingly correlated over the 26 years studied. My thesis will expand on Yang's research with 32 total indices from advanced and emerging markets such as the Jakarta index of Indonesia, the Merval index of Argentina, and All-Ordinaries of Australia to assess if the world's financial markets are continuing integration, with the strongest correlations increasing between advanced markets.
One of the objectives of my correlation research is to equip novice investors in advanced markets such as the U.S. with up-to-date information to enable them to be cautious but more open to investing in emerging economies, which have typically been classified as too risky. My thesis will shed light on how correlation analysis can be used to improve investment strategies and thereby permit investors to exploit the current wave of globalization to earn superior returns.
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Ajayi, Richard A.
Bachelor of Science (B.S.)
College of Business Administration
Business Administration -- Dissertations, Academic;Dissertations, Academic -- Business Administration
Length of Campus-only Access
Honors in the Major Thesis
Strong, Holly R., "Exploring the correlation dynamics of world stock market indices from 1992-2007" (2008). HIM 1990-2015. 758.