Earl D. Benson

This paper examines monthly and daily returns in eleven Asian-Pacific equity markets and the U.S. market, showing that the Asian-Pacific markets systematically follow the returns in the U.S. market (S&P 500 index). For investment managers, the important findings include the fact that each Asian-Pacific market moves differently in response to U.S. market changes over a given time period and the response of most of these markets to changes in the U.S. market is not stable over time. Therefore, in their attempt to diversify a portfolio using individual Asian-Pacific country equities, past correlations and covariances are not necessarily a good predictor of future values, especially for the less developed countries. On average, more developed markets react more strongly to U.S. market changes than do the less developed markets. All markets exhibit asymmetries relative to the U.S. market, where reactions are stronger following down-days than following up-days. Finally, the tests suggest that the Asian-Pacific markets have little or no influence on U.S. market returns.