Interdependencies among the Irish, British and German stock markets

Abstract

Interdependencies between the Irish stock market and two other stock markets, namely the United Kingdom and Germany, are assessed. The indices used are the ISEQ, the FTSE-100, and the FAZ. The application of cointegration techniques suggest that a long-run relationship does not exist between either the stock markets' price levels or their rates of return. There is however, a significant increase in the correlation between short-run returns across the markets after the 1987 stock market crash. Greater stock market integration has coincided with greater financial and economic integration. No lead-lag relationships are found for the pre-crash period in applying Granger causality tests. However, important uni-directional causality is found for the post-crash period. Indicating that the Irish stock market is inefficient. Significant contemporaneous causality is detected for the period of the stock market crash.