A critical appraisal of studies analyzing co-movement of international stock markets with a focus on East-Asian indices

Literature is reviewed on the analysis of co-movement between the price indices of stocks or their realized revenues at various markets. Four major categories of frequently recurring methodological shortcomings are registered. These are: (i) omitted regressor problems, (ii) neglecting to verify agreement of estimation outcomes with adopted model assumptions, (iii) employing particular statistical tests in inappropriate situations and, occasionally, (iv) lack of identification. We focus on studies regarding the interlinkages between emerging and more developed stock markets, in particular those in East-Asia and Wall Street. The devastating effects of the detected methodological defects are explained analytically and also illustrated by simulations and empirical examples.