Review of World Economics

, Volume 155, Issue 1, pp 43–69 | Cite as

International equity markets interdependence: bigger shocks or contagion in the 21st century?

  • Giovanna Bua 
  • Carmine TrecrociEmail author
Original Paper


We investigate the nature of shocks across international equity markets and evaluate the shifts in their comovements at business-cycle frequency. By using a parsimonious “identification through heteroskedasticity” methodology, we compute the impact exposures of index returns to common and country-specific shocks. We then establish some key results regarding comovement amongst international returns and macroeconomic fluctuations over the last decades. First, across all indices, persistent spells of high-volatility and high cross-market correlation always coincide with macroeconomic slowdowns and with measured shifts in macroeconomic and financial uncertainty. Second, there is a rise in the observed responses of international stock returns to common shocks during turbulent periods; however, such increase is largely attributable to bigger shocks (heteroskedasticity of fundamentals) rather than to breaks in the transmission mechanism or increased structural interdependence between markets. This holds for the Great Financial Crisis too. Third, since around the turn of the millennium, returns have more often experienced high volatility and comovement, likely because of larger and persistent macroeconomic disturbances.


International equity markets Volatility Regime switching Structural transmission 

JEL Classification

C32 C51 G15 



We are grateful to José Eduardo Gómez González, Anton Muscatelli, Franco Spinelli, Pietro Veronesi, two anonymous referees and seminar participants at the University of Brescia, Bank of Italy, University of Milan, Infiniti 2017 and ICMAIF 2018 conferences for very helpful comments. All errors remain ours.


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Copyright information

© Kiel Institute 2018

Authors and Affiliations

  1. 1.Central Bank of IrelandDublinIreland
  2. 2.Department of Economics and ManagementUniversity of BresciaBresciaItaly

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