International correlation structure of financial market movements - The evidence from the UK and the US

This paper provides new empirical evidence on the international transmission mechanism of the UK and the US stock market movements and the relationship between the UK and the US economic indicators by using factor analytic approach and canonical correlation analysis. The results show that the UK and the US economies are closely related. The US economic cycle seems to lead those in the UK, as the US economy is more influential than the UK economy. This is in accordance with the results supporting high international integration between the UK and the US stock markets. There seems to be a statistically significant relation between the UK and the US stocks. Significant evidence for feedback relationships between the two stock markets is also found. Overall, support is offered to the finding that the US financial market and US economy seem to have more effect on the behaviour of the UK counterpart than vice versa.