Vitality Among G8 Stock Markets

Financial contagion among the global stock markets has added the risk of investing and studies have identified that the integration of markets as a channel for spreading such contagion. Therefore, this paper investigates the existence of interactions and inter-linkages among leading industrial countries by applying Johansen cointegration test, vector error correction model and variance decomposition for a set of seven markets namely France, Germany, the UK, Italy, Japan, the USA and Canada. The results show the existence of short and long run association among the markets. Specifically, it is seen that European markets have a short-run relationship and they get impacted mainly by the shocks from France market. It is also identified a high transmission of shocks between the countries that exhibit significant short-run relationship