As exchanges look for ways to span time zones and offer trading options overseas, many companies with international exposure have sought stock listings in their overseas markets to capture investors in all parts of the globe. This has increasingly led to parallel performances because the same earnings reports impact several indexes. This is particularly evident in the current slowdown. The indexes increasingly have been mimicking and responding to each other in somewhat of a virtuous circle. The first graph shows how this has increased over time.

As this international relationship tightens, stock markets are increasingly being driven by global rather than local factors. Traditionally, investors sought to reduce risk by diversifying overseas. Globalization by way of expansion into international markets or by cross border mergers, in combination with the technology boom, appears to have increased the importance of world wide factors at the expense of narrower national issues.

Contributing to the trend is the scrapping of controls on capital, which combined with more efficient trading systems, has increased international trading. To a degree, this has created to a single global equity market, even though many companies are traded on different exchanges. Cross border mergers and acquisitions and overseas earnings are accounting for a bigger proportion of many companies' profits, especially high technology firms. And the Internet has made it easier for investors to get information on foreign firms.

Does this mean that local data and events are no longer important? Not at all. While market exuberance and especially revulsion can be infectious and spread to markets world wide, national events have maintained their hold on investors' outlooks. The bottom line is that people still react to what is happening around them and that means local events do matter. A consumer's job, income, and spending are ultimately affected by local conditions. And these local conditions continue to provide the platform for investment. After all, isn't the global economy in part, a sum of all the national parts?

Anne D. Picker, International Economist, Econoday