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Country and sector-specific spillover effects in the euro area, the United States and Japan

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Author Info
Bernd Kaltenhaeuser () (Deutsche Bundesbank, Postfach 100602, D-60006 Frankfurt am Main, Germany.)
Abstract

Within a two-step GARCH framework we explore the linkages between equity returns of ten sectors in the euro area, the United States and Japan, respectively. Our estimation framework allows a distinction to be made between spillover effects originating from one of the three currency areas and intra-sectoral spillover effects. We use daily data from the period between January 1986 and October 2002. We find that, during the late 1990s, the worldwide importance of European equity markets has increased considerably. More precisely, price innovations in European equities (both aggregate returns and sector returns) have doubled or tripled their impact on other stock markets. At the same time, there is evidence that sectors have become more heterogeneous in each of the three currency areas, ie the response to aggregate shocks has increasingly varied across sectors. Spillover effects of aggregate market innovations have generally outweighed intra-sectoral spillover effects. Overall, the process towards higher integration has been primarily a phenomenon of equity markets in the euro area and the United States. JEL Classification: F36; G15.

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Paper provided by European Central Bank in its series Working Paper Series with number 286.

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Length: 43 pages
Date of creation: Nov 2003
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Handle: RePEc:ecb:ecbwps:20030286

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Keywords: Equity returns; spillover effects; country-specific; sector-specific; financial integration.;

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  2. John Y. Campbell, 2001. "Have Individual Stocks Become More Volatile? An Empirical Exploration of Idiosyncratic Risk," Journal of Finance, American Finance Association, vol. 56(1), pages 1-43, 02. [Downloadable!] (restricted)
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  3. Robin Brooks & Luis Catão, . "The New Economy and Global Stock Return," IMF Working Papers 00/216, International Monetary Fund.
  4. R-P. Berben & W.J. Jansen, 2001. "Comovement in International Equity Markets: a Sectoral View," MEB Series (discontinued) 2001-11, Netherlands Central Bank, Monetary and Economic Policy Department. [Downloadable!]
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  5. E.K. Berndt & B.H. Hall & R.E. Hall, 1974. "Estimation and Inference in Nonlinear Structural Models," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 3, number 4, pages 103-116 National Bureau of Economic Research, Inc. [Downloadable!]
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  7. Adjaoute, Kpate & Danthine, Jean-Pierre, 2001. "Portfolio Diversification: Alive and Well in Euroland!," CEPR Discussion Papers 3086, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  8. Hardouvelis, Gikas A & Malliaropoulos, Dimitrios & Priestley, Richard, 1999. "EMU and European Stock Market Integration," CEPR Discussion Papers 2124, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  9. L. Baele, 2003. "Volatility Spillover Effects in European Equity Markets," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 03/189, Ghent University, Faculty of Economics and Business Administration. [Downloadable!]
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  10. K. Geert Rouwenhorst, 1998. "European Equity Markets and EMU: Are the Differences Between Countries Slowly Disappearing?," Yale School of Management Working Papers ysm103, Yale School of Management. [Downloadable!]
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