Integration Between the Stock Markets of Australia and New Zealand and the World Market in 80’s and 90’s

The main purpose of this paper is to explore the dynamic linkages between the stock markets of Australia, New Zealand and the World. This study examines the long-term relationship among the three markets. We also study the short-term adjustment of Australian and New Zealand stock markets and its cointegration with other stock markets. We find that during the years 1988 – 1997 the Australian stock market had a positive long-term relationship with the World stock market, but had an insignificant positive relationship with the New Zealand stock market. The speed of adjustment for both Australian and New Zealand stock markets was significant at the 1% interval, respectively. However, the speed of adjustment for the World stock market was insignificant. We also find that, overall, the Australian stock market was very sensitive to changes in the World market. The sensitivity of the Australian stock market to the World stock market was always positive. The sensitivity of the New Zealand stock market to the Australian stock market was volatile, which indicates the New Zealand stock market was becoming a little decoupled from the Australian stock market. These insights could help us understand the historical relationship among these stock markets, and the financial market integration evolution.