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WEBS, SPDRs, and country funds: an analysis of international cointegration
Journal article   Peer reviewed

WEBS, SPDRs, and country funds: an analysis of international cointegration

J.P Olienyk, R.G. Schwebach and J.K. Zumwalt
Journal of Multinational Financial Management, Vol.9(3-4), pp.217-232
1999
DOI: https://doi.org/10.1016/S1042-444X(99)00003-1
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Abstract

Prior empirical studies analyzing linkages between international equity markets have suffered because suitable real-world financial instruments representing national equity markets were not available for trading. In March 1996, World Equity Benchmark Shares (WEBS) began trading on the American Stock Exchange. WEBS are open-end index funds that trade like closed-end index funds; they are designed to closely track the international indices developed by Morgan Stanley Capital International. This study utilizes WEBS along with Standard & Poor’s Depository Receipts (SPDRs) to avoid the previously encountered problems associated with nonsynchronous trading, fluctuating foreign exchange rates, non-liquidity, trading restrictions, and index replication. Results indicate that substantial pairwise cointegration exists among the 18 market indices as well as between individual closed-end country funds and their own-country WEBS. In addition, Granger causality tests indicate the existence of short-term causal relationships, suggesting market inefficiencies and the possibility of short-run arbitrage opportunities.

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