COMOVEMENTS OF INTERNATIONAL EQUITY RETURNS: A COMPARISON OF THE PRE- AND POST-OCTOBER 19, 1987, PERIODS

Sie Ting Lau and Thomas H. McInish

Using daily returns for 10 leading international equity indexes, this paper investigates changes in return comovements between the pre- and post-October 19, 1987 crash periods. For the same calendar day, the average coefficient of correlation between returns for pairs of countries (n = 45) increased from 0.0941 for January-September 1987 to 0.3080 for calendar year 1988. In every case the covariance matrixes between pairs of countries is significantly different between the pre- and post-crash periods. There are substantially more (43 versus 20) statistically significant lead/lag relationships among equity markets in the post-crash period than in the pre-crash period, and the lead/lag relationship changed between the pre- and post-crash periods for 29 of the 45 pairs of countries. All of this evidence supports the conclusion that international equity markets have become much more integrated in the post-crash period.