  This paper analyzes the process of long-run co-movements and stock market
globalization on the basis of cointegration tests and vector error correction
(VEC) models. The cointegration tests used here allow for structural breaks to
be explicitly modeled and breakpoints to be computed on a relative-time basis.
The data used in our empirical analysis were drawn from Datastream and comprise
the natural logarithms of relative stock market indexes since 1973 for the G7
countries. The main results point to the conclusion that significant causal
cointegration effects occur in this context and that there is a long-run
equilibrium relationship that governs the worldwide process of market
integration. Globalization, however, is a complex adjustment process and in
many cases there is only evidence of weak market integration which means that
non-proportional price transmission occurs in the market along with
proportional changes. The worldwide markets, as expected, appear to be driven
in general by the US stock market.
