Global stock market reactions to scheduled U.S. macroeconomic news announcements

This study investigates how global stock markets are integrated with respect to the U.S. macroeconomic news announcements. Although both investors on U.S. and non-U.S. stock markets are interested in those news releases their general importance to stock market investors can be expected to vary across economic regions as a result of differences in dependence on international trade, size of the market, foreign ownership and the industrial and economic structures. To investigate this issue we analyze the behavior of GARCH volatilities around ten important scheduled U.S. macroeconomic news announcements on 35 local stock markets that are divided in six regions. The results show that the G7 countries, the European countries other than G7 countries, developed Asian countries and emerging Asian countries are closely integrated with respect to the U.S. macroeconomic news, while Latin America and Transition economies are not affected by U.S. news. These results support the earlier findings, such as Bekaert and Harvey [Bekart, G. and Harvey, C., 1995, Time varying world market integration, Journal of Finance 50, 403-444.] and Rockinger and Urga [Rockinger, M. and Urga, G. 2001. A time-varying parameter model to test for the predictability and integration in the stock markets of Transition economies, Journal of Business and Economic Statistcs 19, 73-84.], that the market integration is high among the major stock markets while some emerging markets are segmented. This implies that the international investors are able to obtain diversification benefit by investing in those segmented emerging regions. © 2006 Elsevier Inc. All rights reserved.