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The Integration of Financial Markets and the Conduct of Monetary Policies: The Case of Canada and the United States

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Author Info
Michel Normandin () (Center for Research on Economic Fluctuations and Employment, UQAM)

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Abstract

This paper gauges the international integration hypothesis, i.e. risk-adjusted anticipated returns are identical, even when financial instruments are traded in different countries. This hypothesis is verified by testing the equality between domestic and foreign risk prices induced by a multi-factor analytic specification. The maximum likelihood and Kalman filter estimates are used to assess the national risk prices and interpret the factors. Empirically, the integration of Canadian and U.S. financial markets depends crucially on the risk prices associated with a factor capturing switches in monetary regimes. This finding is contrary to the conventional wisdom that the globalization of capital markets leads to their integration.

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Publisher Info
Paper provided by CREFE, Université du Québec à Montréal in its series Cahiers de recherche CREFE / CREFE Working Papers with number 67.

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Length: 26 pages
Date of creation: Jan 1999
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Handle: RePEc:cre:crefwp:67

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Related research
Keywords: Conditional Heteroscedasticity; Kalman Filter; Maximum Likelihood; Monetary Regimes; Prices of Risk; Unspecified Factors.;

Find related papers by JEL classification:
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

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    Other versions:
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Michel Normandin & Louis Phaneuf, 2003. "Monetary Policy Shocks: Testing Identification Conditions Under Time-Varying Conditional Volatility," Cahiers de recherche 03-04, HEC Montréal, Institut d'économie appliquée. [Downloadable!]
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