Rethinking stock market integration: Globalization, valuation and convergence

This paper aims to study the extent of integration among developed and emerg- ing stock markets in the onset of globalization through the formulation of a uni…ed conceptual framework that synthesizes the stock valuation model and the convergence hypothesis. Market integration manifests in the convergence of stock valuation ratios of markets in the long run, where valuation ratios are reflective of stock fundamentals driven by common global factors across markets. The spectrum of transition dynamics of markets towards integration is explored with variants of valuation ratios and di¤er- ent notions of convergence. Results reveal the time-varying nature of the global stock market integration process that is characterized by heterogeneous transition experience of markets at both the total market and disaggregated industrial sector levels.