An Investigation of Cointegration and Casualty Relationships between the PIIGS' Stock Markets

The purpose of this paper is to test whether cointegration and causality relationships exists among the Europrean Stock Markets come to be known as the PIIGS, an acronym for Portugal, Italy, Ireland, Greece and Spain. By testing whether such kind of relationships exist among these stock markets, the Efficient Market Hypothesis is also being tested. Possible evidence of cointegration among these stock markets will show that the advantages one might have by internationally diversifying over these countries, are not significant. Furthermore, it will show that the selection of an optimal portfolio in an international level is not an easy case. Especially at this moment, investigating the financial markets of the PIIGS is extremely important, since Europe faces the most severe financial crisis of its history