Transcribed image text: Market correlation studies focus on market movements oversegments of time, such as monthly average returns over years or blocks of years. But correlation coefficients between markets on singular events, such as major global crises, disasters, or events of global profile, often show near-perfect correlations, with all markets moving identically. In most cases, the identification of the event (for example the terrorist attacks of September 11, 2001) is relatively easy. In other instances, however, such as the stock market crash of October 19, 1987; the crash of October 13, 1989; orthe collapse of the Thai baht on July 2. 1997, instigating the Asian Crisis of 1997: finding a smoking gun is difficult. Whether it be the madness of crowds or unknown forces, the causal event is difficult to find even after the fact. (Michael Mussa often recites a television news story in which the governor of Ohio claimed that a major prison riot was the work of "outside agitators.) In some cases in history, however, the correlation in equity market movements displays an interesting twist. On January 17, 1991, the U.S. initiated its counterattack on Iraqi forces which had occupied Kuwait. The date had been watched with intense interest for months as then President George Bush had warned Iraq that it had until that date to withdraw. When no withdrawal occurred, the U.S. attack began on January 17. Nineteen global equity markets all closed up that day, with percentage increases ranging from 1.17% in Toronto to 7.56% in Frankfurt (the DAX). But there was one market that closed down that daythe Johannes-burg exchange index. The reason? That is the one equity market in the world, at least at that time, that was dominated by the value of goldthat substance to which many investors run when the world is at risk (as in the spring of 2011), or flee when all seems to be returning to calm. a Asses the salient issues on international financial markets brought to fore by the case b. The benefits of portfolio construction, domestically or internationally, arise from the lack of correlation among assets and markets. Discuss (in light of the above case) Examine the question of whether international markets appear to be more or less integrated over time. Transcribed image text: Market correlation studies focus on market movements oversegments of time, such as monthly average returns over years or blocks of years. But correlation coefficients between markets on singular events, such as major global crises, disasters, or events of global profile, often show near-perfect correlations, with all markets moving identically. In most cases, the identification of the event (for example the terrorist attacks of September 11, 2001) is relatively easy. In other instances, however, such as the stock market crash of October 19, 1987; the crash of October 13, 1989; orthe collapse of the Thai baht on July 2. 1997, instigating the Asian Crisis of 1997: finding a smoking gun is difficult. Whether it be the madness of crowds or unknown forces, the causal event is difficult to find even after the fact. (Michael Mussa often recites a television news story in which the governor of Ohio claimed that a major prison riot was the work of "outside agitators.) In some cases in history, however, the correlation in equity market movements displays an interesting twist. On January 17, 1991, the U.S. initiated its counterattack on Iraqi forces which had occupied Kuwait. The date had been watched with intense interest for months as then President George Bush had warned Iraq that it had until that date to withdraw. When no withdrawal occurred, the U.S. attack began on January 17. Nineteen global equity markets all closed up that day, with percentage increases ranging from 1.17% in Toronto to 7.56% in Frankfurt (the DAX). But there was one market that closed down that daythe Johannes-burg exchange index. The reason? That is the one equity market in the world, at least at that time, that was dominated by the value of goldthat substance to which many investors run when the world is at risk (as in the spring of 2011), or flee when all seems to be returning to calm. a Asses the salient issues on international financial markets brought to fore by the case b. The benefits of portfolio construction, domestically or internationally, arise from the lack of correlation among assets and markets. Discuss (in light of the above case) Examine the question of whether international markets appear to be more or less integrated over time