Conventionally, Australia’s major economic partners, particularly in terms of bilateral trade, have been the USA and the UK. However, over the last two decades, there has been a significant change in Australia’s economic associations, shifting from the USA and the UK to Asian countries. This suggests that Australia is economically integrating more with Asian countries than with its traditional partners. Theories of stock market interdependence, trade and asset pricing suggest that higher economic linkages among the countries can have a considerable impact on their stock markets’ interdependence. Empirical literature also suggests that stronger economic relations between the nations can significantly increase stock market relationships in the long-run. However, some other empirical studies documents that trade linkages have no considerable impact on stock market linkages.
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