The Impact of the Factors on Stock Markets Correlation by Using Gravity Model

Pathairat Pastpipatkul ； Dulyagul Khabwang ； Petchaluck Boonyakunakorn

《International Journal of Intelligent Technologies and Applied Statistics》 12卷2期 (2019/06) Pp. 183-195

https://doi.org/10.6148/IJITAS.201906_12(2).0005

摘要

This study explains the impact of factors on cross-country stock market correlations between Thailand and Japan. Based on the gravity model, the main factors are economic size and distance. Economic size is defined as market capitalization. In term of trade flows, geographical distance is an important variable. This variable is representative of transportation cost. In contrast to goods market, the stock market is weightless and geographical distance cannot be a proxy of transportation costs. Furthermore, this study captures the special character of the stock market behavior by adding financial economics variables which are investment and financial freedom variables. Moreover, the structure and linkage between Thailand and Japan stock market are considered. The highest correlation occurs in period 2013. Meanwhile, the Prime Minister Shinzo Abe launched Abenomics. Thus, this policy may affect to the stock market correlation. Furthermore, the results show that market capitalization, investment freedom index, and financial freedom index are a positive impact on the cross-country stock market correlations. Moreover, geographical distance has a negative impact on the cross-country stock market correlations. Because these countries are net-oil importing countries, the relationship between distance variable and cross-country stock market correlation is negative. That is, investors will invest less in net-oil importing countries than net oil-exporting countries if oil price changes positively.

關鍵字

Stock market correlation ； Financial economics variables ； Gravity model