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Asymmetric Volatility Spillovers between Stock Market and Real Activity: Evidence from the UK and the US

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Author Info

  • Nikolaos Giannellis

    ()
    (Department of Economics, University of Ioannina, Greece)

  • Angelos Kanas

    ()
    (Department of Economics, University of Piraeus, Greece)

  • Athanasios P. Papadopoulos

    ()
    (Department of Economics, University of Crete, Greece)

Abstract

This paper examines the short-run dynamic relationships between stock market and real activity, within a country, for the UK and the US. The Cross Correlation Function testing procedure is applied to test for causality in mean and in variance between the stock market and the real economic sector. Besides variance causation, volatility spillover effects are examined through the multivariate specification form of the Exponential GARCH model. There is evidence of significant reciprocal volatility spillovers between the two sectors within a country, implying stronger interdependencies in the UK rather than in the US and asymmetric behavior only in the case of the UK.

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Bibliographic Info

Article provided by Savez ekonomista Vojvodine, Novi Sad, Serbia in its journal Panoeconomicus.

Volume (Year): 57 (2010)
Issue (Month): 4 (December)
Pages: 429-445

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Handle: RePEc:voj:journl:v:57:y:2010:i:4:p:429-445

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Web page: http://www.panoeconomicus.rs/

Related research

Keywords: Stock market; Real activity; Volatility spillovers; UK; US;

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References

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  1. Angelos Kanas, 2000. "Volatility Spillovers Between Stock Returns and Exchange Rate Changes: International Evidence," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 27(3-4), pages 447-467.
  2. Nikiforos T. Laopodis, 2006. "Dynamic Interactions among the Stock Market, Federal Funds Rate, Inflation, and Economic Activity," The Financial Review, Eastern Finance Association, vol. 41(4), pages 513-545, November.
  3. Paolo Mauro, 2000. "Stock Returns and Output Growth in Emerging and Advanced Economies," IMF Working Papers 00/89, International Monetary Fund.
  4. Angelos Kanas, 1998. "Volatility spillovers across equity markets: European evidence," Applied Financial Economics, Taylor & Francis Journals, vol. 8(3), pages 245-256.
  5. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
  6. Hassapis, Christis & Kalyvitis, Sarantis, 2002. "Investigating the links between growth and real stock price changes with empirical evidence from the G-7 economies," The Quarterly Review of Economics and Finance, Elsevier, vol. 42(3), pages 543-575.
  7. Cheung, Yin-Wong & Ng, Lilian K., 1996. "A causality-in-variance test and its application to financial market prices," Journal of Econometrics, Elsevier, vol. 72(1-2), pages 33-48.
  8. Ben Bernanke & Mark Gertler, 1999. "Monetary policy and asset price volatility," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 17-51.
  9. Jay Choi, Jongmoo & Hauser, Shmuel & Kopecky, Kenneth J., 1999. "Does the stock market predict real activity? Time series evidence from the G-7 countries," Journal of Banking & Finance, Elsevier, vol. 23(12), pages 1771-1792, December.
  10. Ashley, R & Granger, C W J & Schmalensee, R, 1980. "Advertising and Aggregate Consumption: An Analysis of Causality," Econometrica, Econometric Society, vol. 48(5), pages 1149-67, July.
  11. Charles T. Carlstrom & Timothy S. Fuerst & Vasso P. Ioannidou, 2002. "Stock prices and output growth: an examination of the credit channel," Economic Commentary, Federal Reserve Bank of Cleveland, issue Aug.
  12. Michael B. Devereux & Gregor W. Smith, 1991. "International Risk Sharing and Economic Growth," Working Papers 829, Queen's University, Department of Economics.
  13. Skintzi, Vasiliki D. & Refenes, Apostolos N., 2006. "Volatility spillovers and dynamic correlation in European bond markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 16(1), pages 23-40, February.
  14. Sydney Ludvigson & Charles Steindel, 1998. "How important is the stock market effect on consumption?," Research Paper 9821, Federal Reserve Bank of New York.
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Cited by:
  1. Stavros Stavroyiannis & Leonidas Zarangas, 2013. "Out of Sample Value-at-Risk and Backtesting with the Standardized Pearson Type-IV Skewed Distribution," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 60(2), pages 231-247, April.

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