Comparison Between Stock Synchronicity Measures an Empirical Analysis

In this paper, I analyse three measures of stock market synchronicity; the classical measure, the R square measure and the zero return measure proposed by Morck et al. (2000), Skaife et al. (2006) and Khandaker (2012). It is found that the classical measure and the R square measure exhibit somewhat similar aspects of stock market synchronous behaviour while the zero return measure provides a different finding. Further, cross-sectional analysis shows that inflation is generally positively correlated with the classical measure and the R-square measure, while it is negatively correlated with the zero return measure; and government accountability and trade openness is negatively correlated with the classical measure and the R-square measure whereas it is positively correlated with the zero return measure. Analysis of the correction coefficient shows that the classical measure is positively correlated with the R square measure while the zero return measure is negatively correlated with both these measures. The paper concludes that the classical measure and the R square measure of stock synchronicity are closely correlated while the zero return measure captures an aspect of stock market behaviour other than stock synchronicity