Correlations, business cycles and integration

Correlations and the integration of capital markets impact upon portfolio diversification. The key research question addressed in this paper is whether and to what extent business cycles and financial deregulation affect correlations and integration between the Australian and US markets. In summary, four major themes can be detected in our findings. First, correlations between the Australian and US markets are at their highest when the US is in a contractionary phase. Secondly, we are more likely to conclude that the markets are integrated in the expansionary phase of business cycles. Thirdly, we are more likely to conclude that the markets are segmented in the contractionary phase of the business cycles. Finally, we are more likely to conclude that markets are segmented prior to deregulation and integrated in the post financial deregulation period.