Ebb and flow? Co-integration with structural breaks between emerging markets in the EMEA and USA

In this paper, we try to analyse the long-run relationship between the stock prices of emerging markets in the Europe, Middle East and Africa (EMEA) region and the US market. Our aim is to find out whether these markets provide opportunities for international diversification to US investors. We employ the Gregory and Hansen (GH) (1996) co-integration test, which takes into account the structural breaks to analyse co-movements of the emerging markets in the aforementioned region with the USA over the period 1995-2008 using monthly data. We only find a long-run relationship between stock indices of Israel and the USA.