International Stock Markets Comovements: the Role of Economic and Financial Integration

In this paper the contributions of economic and financial integration to international stock markets comovements are investigated by means of a large scale macroeconometric model, set in the factor vector autoregressive framework (FVAR). The findings point to a key role of both economic and financial integration in determining stock markets comovements among the G-7 countries. While the former exercises its effects through the common response to global economic shocks, the latter operates through financial shocks spillovers, particularly at the regional level.