Interdependence between the US and major European equity markets: evidence from spectral analysis

This paper uses spectral analysis to examine interrelationships between the daily returns generated by one US (S&P 500) and three major European (FTSE 100, DAX 30, CAC 40) share price indices. Evidence is found of strong interdependence between the European returns series, as well as a lead-lag relationship between the US and each of the European series, explained by non-synchronous trading. The spectra also reveal some evidence of cyclical fluctuation in the return series. The patterns are similar among the European series for cycles of all frequencies, while similarities between the US and the European series are evident at low, but not at high frequencies.