Smooth Transition Regression Models in UK Stock Returns
AbstractThis paper models UK stock market returns in a smooth transition regression (STR) framework. We employ a variety of financial and macroeconomic series that are assumed to influence UK stock returns, namely GDP, interest rates, inflation, money supply and US stock prices. We estimate STR models where the linearity hypothesis is strongly rejected for at least one transition variable. These non-linear models describe the in-sample movements of the stock returns series better than the corresponding linear model. Moreover, the US stock market appears to play an important role in determining the UK stock market returns regime.
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Bibliographic InfoPaper provided by Royal Economic Society in its series Royal Economic Society Annual Conference 2002 with number 11.
Date of creation: 29 Aug 2002
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2002-07-08 (All new papers)
- NEP-ETS-2002-07-08 (Econometric Time Series)
- NEP-FIN-2002-07-08 (Finance)
- NEP-FMK-2002-07-08 (Financial Markets)
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Royal Economic Society Annual Conference 2002
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