Finding evidence of stock market integration applying a CAPM or testing for common stochastic trends . Is there a connection ? ∗
نویسنده
چکیده
In this paper it is demonstrates that if assets are priced according to Black’s (1972) CAPM, then tests on the cointegrated VAR can reveal evidence for or against integration of financial markets. If the market portfolios cointegrate one-to-one and share the same deterministic long-run trend, the markets obey the law of one price. Furthermore, it is shown how the driving force of the prices can be found. Evidence from an empirical example suggests that the Danish and American stock markets are integrated because US stock prices drive those of Denmark.
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