Common Volatility between Closed-End Country Funds and Three Comparable Return Series: An Empirical Investigation
Posted: 4 Oct 2009
Date Written: October 2, 2009
Abstract
The study of international integration of equity markets has received a great deal of interest. This paper investigates whether returns of 41 closed-end country funds share a common volatility process with three comparable return-series: the underlying net asset value (NAV), the U.S., and the foreign stock market returns. Country funds provide a natural setting to test for international market integration as they are traded in the U.S. market while their underlying assets are traded in foreign stock markets. Our results indicate that only a few emerging markets’ country funds share common volatility processes with their comparable asset returns. This, in turn, suggests weak linkages through the second moment of related assets.
Keywords: country fund, common volatility, asset pricing, market integration
JEL Classification: F36, G12
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