Interrelationships among regional stock indices $ Orawan Ratanapakorn a , Subhash C. Sharma b, * a Faculty of Economics, Bangkok 10200, Thailand b Department of Economics, Southern Illinois University, Carbondale, IL 62901-4515, USA Received 10 April 2001; received in revised form 13 October 2001; accepted 22 January 2002 Abstract This study investigates the short-run and long-run relationships among stock indices of the US, Europe, Asia, Latin America, and Eastern Europe –Middle East for the pre-Asian crisis and for the crisis period. The findings from these two periods are compared and contrasted. No long-run relationship is observed among these indices during the pre-Asian crisis period. However, during the crisis period, one significant cointegrating vector is observed and more short-run (i.e., causal) relations are observed in this period as compared to the pre-crisis period. Based on the analysis, we infer that during the Asian crisis period, the globalization increased and only the European markets directly effected the US market, while the other regional markets indirectly influenced the US market via the European market. As regards the effect of shocks, we observe that during the pre-Asian crisis period, the response of all regional markets to shocks in other markets is transitory, whereas during the crisis period, the response of the US stock market is transitory but that of EU market is permanent to all other markets. D 2002 Published by Elsevier Science Inc. JEL classification: G15 Keywords: Cointegration; Vector error correction model; Granger causality; US stock markets; European stock markets; Asian stock markets; Latin American stock markets; Eastern Europe – Middle East stock markets 1059-0560/02/$ – see front matter D 2002 Published by Elsevier Science Inc. PII:S1059-0560(02)00103-X $ We would like to thank the editors for their patience. We would also like to thank the referee for helpful comments and suggestions which has greatly improved this study. * Corresponding author. Tel.: +1-618-453-5070; fax: +1-618-453-2717. E-mail address: sharma@siu.edu (S.C. Sharma). Review of Financial Economics 11 (2002) 91 – 108