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WEBS, SPDRs, and country funds: an analysis of international cointegration

Olienyk, J.P, Schwebach, R.G. and Zumwalt, J.K. (1999) WEBS, SPDRs, and country funds: an analysis of international cointegration. Journal of Multinational Financial Management, 9 (3-4). pp. 217-232.

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Prior empirical studies analyzing linkages between international equity markets have suffered because suitable real-world financial instruments representing national equity markets were not available for trading. In March 1996, World Equity Benchmark Shares (WEBS) began trading on the American Stock Exchange. WEBS are open-end index funds that trade like closed-end index funds; they are designed to closely track the international indices developed by Morgan Stanley Capital International. This study utilizes WEBS along with Standard & Poor’s Depository Receipts (SPDRs) to avoid the previously encountered problems associated with nonsynchronous trading, fluctuating foreign exchange rates, non-liquidity, trading restrictions, and index replication. Results indicate that substantial pairwise cointegration exists among the 18 market indices as well as between individual closed-end country funds and their own-country WEBS. In addition, Granger causality tests indicate the existence of short-term causal relationships, suggesting market inefficiencies and the possibility of short-run arbitrage opportunities.

Item Type: Journal Article
Murdoch Affiliation: School of Commerce
Publisher: Elsevier
Copyright: © 1999 Elsevier Science B.V.
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