Comparative Analysis of Korean Equity and Debt Markets with the U.S. Capital Markets
Heung-Joo Cha

Abstract
This paper studies the long-run comovement of Korean and the U.S. stock and bond markets using two different cointegration tests. We use both the Engle-Granger cointegration test and the Canonical Cointegration Regression (CCR) method to test the long-run comovement of asset returns. The Engle-Granger cointegration tests indicate that there is little evidence on cointegration between the bond and stock markets of the two countries, which is consistent with the results found in the previous studies. Using the CCR method, however, we find more favorable evidence of comovement between the asset market returns. Tests with monthly data show some evidence of cointegration between the asset return series, while with quarterly data we find that most of the time series of asset returns are cointegrated. Our empirical study presents indirect evidence of the effects of cross investments leading to more integration of asset markets.

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