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The article examines the price linkages of three major United States-traded country funds--Germany, Japan and Great Britain--with their own national and the United States stock markets. A country fund was created as an indirect alternative, to direct portfolio investments in the country's stock markets. As such, given the scope of investments limited to a single country, it is expected a priori that fund prices have some degree of sensitivity to local market conditions (the country of investments). The degree to which fund prices are related to local market prices has important implications, for both short-term and long-term investors, in terms of their investment strategies regarding that market. Moreover, since a (US-listed) country fund is also an asset traded in the US, its pricing is also likely to be related to US market developments. The relation between the fund and the US market indicates the extent to which the country fund can be treated as a US security. The purpose of this paper is to study the pattern of cointegration and causality, between the country fund and national stock prices.

This article investigates the interdependence of stock returns and exchange rate changes within the same economy. Six countries were tested for volatility spillovers, namely the U.S., Great Britain, Japan, Germany, Canada and France. Evidence of spillovers from stock returns to exchange rate changes is found for all countries except Germany. These results suggest that the asset approach to exchange rate determination is valid when formulated in terms of the second moments of the exchange rate distribution for these countries. The spillovers from stock returns to exchange rate changes are symmetric in nature. Volatility spillovers from exchange rate changes to stock returns are insignificant for all countries.

The article discusses the stationarity of the correlation coefficients between the monthly returns of the share market indices from selected countries from January 1970 to December 1977 after adjusting for exchange gains and losses. The inter-country correlation coefficients were calculated over one-year, two-year and four-year to test for stationarity. The inter-country correlation coefficients were all important at the five percent level over the eight-year period of study. The results on the stationarity of the inter-correlation coefficients between Australia and Japan for four year sub-periods and between Denmark and South Africa, Japan and New Zealand, and New Zealand and the U.S. for the final two year sub-periods were different at the five per cent level. Correlations between Australia and Germany, Australia and the U.S., and Denmark and the U.S. indicate that none of the inter-country correlation coefficients was time dependent at the five per cent level.