
19.
A Dynamic Analysis of S&P 500, FTSE 100 and EURO STOXX 50
Indices under Different Exchange Rates
Y. Chen, R.N. Mantegna, A.A. Pantelous, and K.M. Zuev
PLOS ONE, vol. 13, no. 3, article e0194067,
Mar. 2018.
[Web DOI
 Paper pdf
 SSRN id2998600]
Abstract: In this study, we assess the dynamic evolution
of shortterm correlation, longterm cointegration and Error
Correction Model (hereafter referred to as ECM)based longterm
Granger causality between each pair of US, UK, and Eurozone
stock markets from 1980 to 2015 using the rollingwindow technique.
A comparative analysis of pairwise dynamic integration and causality
of stock markets, measured in common and domestic currency terms,
is conducted to evaluate comprehensively how exchange rate fluctuations
affect the timevarying integration among the S&P 500, FTSE
100 and EURO STOXX 50 indices. The results obtained show that
the dynamic correlation, cointegration and ECMbased longrun
Granger causality vary significantly over the whole sample period.
The degree of dynamic correlation and cointegration between
pairs of stock markets rises in periods of high volatility and
uncertainty, especially under the influence of economic, financial
and political shocks. Meanwhile, we observe the weaker and decreasing
correlation and cointegration among the three developed stock
markets during the recovery periods. Interestingly, the most
persistent and significant cointegration among the three developed
stock markets exists during the 2007–09 global financial
crisis. Finally, the exchange rate fluctuations, also influence
the dynamic integration and causality between all pairs of stock
indices, with that influence increasing under the local currency
terms. Our results suggest that the potential for diversifying
risk by investing in the US, UK and Eurozone stock markets is
limited during the periods of economic, financial and political
shocks. 

