This paper examines whether foreign direct investment between countries fosters stock market integration. Empirical tests demonstrate that both the flow and the level of bilateral foreign direct investment between countries explain country-pair stock market integration. More specifically, higher bilateral foreign direct investment levels and flows increase Australia’s stock market integration with its major trade partners.
Aizenman J. and Noy I. ( 2006) FDI and trade - two way linkages?Quarterly Review of Economics and Finance46(3): 317-337.
2.
Aizenman J. and Noy I. ( 2009) Endogenous Financial and trade openness. Review of Development Economics13: 175-189.
3.
Albuquerque R., Loayza N. and Serven L. ( 2005) World market integration through the lens of foreign direct investors. Journal of International Economics66: 267-295.
4.
Baharumshah A., Sarmidi T. and Tan H. ( 2003) Dynamic linkages of Asian stock markets. Journal of the Asia Pacific Economy8(2): 180-209.
5.
Baker M., Foley C and Wurgler J (2009) Multinationals as arbitrageurs: the effect of stock market valuations on foreign direct investment. Review of Financial Studies22(1): 337-369.
6.
Bekaert G. and Harvey CR ( 1995) Time varying world market integration. Journal of Finance50: 403-444.
7.
Bekaert G. and Harvey CR ( 2000) Foreign speculators and emerging equity markets . Journal of Finance55: 565-613.
8.
Bekaert G., Harvey CR and Lumsdaine R. ( 2002) Dating the integration of world equity markets . Journal of Financial Economics65(2): 203-247.
9.
Bekaert G., Hodrick RJ and Zhang X. ( 2005) International Stock Return Comovements. Working Paper atColumbia University.
10.
Bénassy-Quéré A., Coupet M. and Mayer T. (2007) Institutional determinants of foreign direct investment. The World Economy30(5): 764-782.
11.
Bevan AA and Estrin S. ( 2004) The determinants of foreign direct investment into European transition economies. Journal of Comparative Economics32: 775-787.
12.
Bracker K., Docking D. and Koch P. ( 1999) Economic determinants of evolution in international stock market integration. Journal of Empirical Finance6: 1-27.
13.
Calvet AL ( 1981) A synthesis of foreign direct investment theories and theories of the multinational firm. Journal of International Business Studies12(1): 43-59.
14.
Daly KJ ( 2003) Southeast Asian Stock market linkages: evidence from pre- and post-October 1997. ASEAN Economic Bulletin20(1): 73-85.
15.
Dunning JH ( 1973) The determinants of international production. Oxford Economic Papers25(3): 289-336.
16.
Dunning JH ( 1979) Explaining changing patterns of international production: in defence of the eclectic theory. Oxford Bulletin of Economics and Statistics41(4): 269-296.
17.
Eiteman D., Stonehill A. and Moffett M. ( 2004) Multinational Business Finance, 10th ed. Old Tappan, NJ: Pearson Education.
18.
Friedman J. and Shachmurove Y. ( 1997) Co-movements of major European community stock markets: a vector autoregression analysis. Global Finance Journal8(2): 257-277.
19.
Geweke JF ( 1982) Measurement of linear dependence and feedback between multiple time series. Journal of the American Statistical Association77(378): 304-313.
20.
Geweke JF ( 1984) Measures of conditional linear dependence and feedback . Journal of American Statistical Association79(388): 907-915.
21.
Gilmore C. and McManus G. ( 2002) International portfolio diversification: US and Central European equity markets. Emerging Markets Review3(1): 69-83.
22.
Henry PB ( 2000) Stock market liberalization, economic reform, and emerging market equity prices. Journal of Finance55: 529-564.
23.
Hill C. ( 2005) International Business: Competing in the Global Marketplace , 5th ed. New York : McGraw-Hill/Irwin.
24.
IMF (2008a) Investment, direct, from abroad to reporting economy. 7 July 2008.
25.
IMF (2008b) Exports. Merchandise 27 July 2008.
26.
IMF (2008c) Imports. Merchandise 27 July 2008.
27.
Jansen W. and Stokman C. ( 2004) Foreign Direct Investment and International Business Cycle Comovement. Working Paper atEuropean Central Bank .
28.
Johnson R. and Soenen L. ( 2002) Asian economic integration and stock market comovement . Journal of Financial Research25(1): 141-157.
29.
Johnson R. and Soenen L. ( 2003) Economic integration and stock market comovement in the Americas. Journal of Multinational Financial Management13(1): 85-100.
30.
Karolyi A. and Stulz R. ( 1996) Why do markets move together? An investigation of U.S.-Japan stock return comovements. The Journal of Finance51(3): 951-986.
31.
King M., Sentana E. and Wadhwani S. ( 1994) Volatility and links between national stock markets . Econometrica62(4): 901-933.
32.
Lipsey R. ( 1999) The Role of Foreign Direct Investment in International Capital Flows. NBER Working Paper No. 7094.
33.
Longin F. and Solnik B. ( 1995) Is the correlation in international equity returns constant: 1960-1990?Journal of International Money and Finance14(1): 3-26.
34.
Longin F. and Solnik B. ( 2001) Extreme correlation of international equity markets . Journal of Finance56(2): 649-676.
35.
Nourzad F. ( 2005) Macroeconomic and sectoral effects of international trade: a vector error-correction study. Atlantic Economic Journal33(1): 43-54.
36.
Oecd (2008a) Glossary of Foreign Direct Investment Terms and Definitions. 31 July 2008.
37.
Oecd (2008b) International Direct Investment by Country, vol. 2007, Release01, 25 June 2008.
38.
Oecd (2008c) Total Trade in Value by Partner Countries, Annual vol. 2008, release06, 19 July 2008.
39.
Phylaktis K. and Ravazzolo F. ( 2002) Measuring financial and economic integration with equity prices in emerging markets. Journal of International Money & Finance21: 879-903.
40.
Ragunathan V. ( 1999) Financial deregulation and integration: an Australian perspective. Journal of Economics & Business51(6): 505-514.
41.
Sarkissian S. and Schill MJ ( 2004) The overseas listing decision: new evidence of proximity preference. Review of Financial Studies17(3): 769-809.
42.
Sarno L. and Taylor M. ( 1999) Moral hazard, asset price bubbles, capital flows, and the East Asian crisis: the first tests. Journal of International Money and Finance18: 637-657.
43.
Sorensen BE, Wu Y., Yosha O. and Zhu Y. ( 2007) Home bias and international risk sharing: twin puzzles separated at birth. Journal of International Money and Finance26: 587-605.
44.
Tai C. ( 2007) Market integration and contagion: evidence from Asian emerging stock and foreign exchange markets. Emerging Markets Review8(4): 264-283.
45.
Taskin F. and Muradoglu G. ( 2003) Financial liberalisation: from segmented to integrated economies. Journal of Economics & Business55(5/6): 529-555.
46.
UN (2008a) GDP Per Capita, Current Prices. Common Database Series Code19510, 7 July 2008.
47.
UN (2008b) GDP at market prices . Current Prices 7 July 2008.
48.
Wong W., Penm J., Terrell R. and Ching K. ( 2004) The Relationship between stock markets of major developed countries and Asian emerging markets. Journal of Applied Mathematics & Decision Sciences8(4): 201-218.
