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Who Leads Financial Markets?

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  • Enzo Weber

Abstract

The present paper embarks on an analysis of interactions between the US and Euroland in the capital, foreign exchange, money and stock markets from 1994 until 2006. Considering influences on financial market volatility, the estimations are carried out in multivariate EGARCH models using structural residuals. This approach consequently allows identifying the contemporaneous effects between the daily variables. Structural VARs or VECMs can therefore give answers to the question of financial markets leadership: Generally speaking, the US effects on Europe still dominate, but the special econometric methodology is able to uncover otherwise neglected effects in the reverse direction.

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Bibliographic Info

Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2007-015.

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Length: 24 pages
Date of creation: Apr 2007
Date of revision:
Handle: RePEc:hum:wpaper:sfb649dp2007-015

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Keywords: Structural EGARCH; Financial Markets; United States; Euro Zone.;

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References

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  1. Chinn, Menzie & Frankel, Jeffrey A., 2003. "The Euro Area and World Interest Rates," Santa Cruz Department of Economics, Working Paper Series qt9823140f, Department of Economics, UC Santa Cruz.
  2. Enzo Weber, 2007. "Volatility and Causality in Asia Pacific Financial Markets," SFB 649 Discussion Papers SFB649DP2007-004, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  3. Ehrmann, Michael & Fratzscher, Marcel, 2003. "Equal size, equal role? Interest rate interdependence between the Euro area and the United States," CFS Working Paper Series 2003/46, Center for Financial Studies (CFS).
  4. Michael Ehrmann & Marcel Fratzscher & Roberto Rigobon, 2005. "Stocks, Bonds, Money Markets and Exchange Rates: Measuring International Financial Transmission," NBER Working Papers 11166, National Bureau of Economic Research, Inc.
  5. Weber, Enzo, 2011. "What happened to the transatlantic capital market relations?," Economic Modelling, Elsevier, vol. 28(3), pages 877-884, May.
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  7. Cappiello, Lorenzo & De Santis, Roberto A., 2005. "Explaining exchange rate dynamics: the uncovered equity return parity condition," Working Paper Series 0529, European Central Bank.
  8. M. Ehrmann & M. Fratzscher, 2003. "Interdependence between the Euro area and the U.S.: what role for EMU?," Proceedings, Board of Governors of the Federal Reserve System (U.S.).
  9. James G. MacKinnon, 1995. "Numerical Distribution Functions for Unit Root and Cointegration Tests," Working Papers 918, Queen's University, Department of Economics.
  10. Gabriele Galati & Corrinne Ho, 2001. "Macroeconomic news and the euro/dollar exchange rate," BIS Working Papers 105, Bank for International Settlements.
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  12. Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, vol. 59(2), pages 347-70, March.
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  14. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501, September.
  15. Baur, Dirk & Jung, Robert C., 2006. "Return and volatility linkages between the US and the German stock market," Journal of International Money and Finance, Elsevier, vol. 25(4), pages 598-613, June.
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  17. Comte, F. & Lieberman, O., 2003. "Asymptotic theory for multivariate GARCH processes," Journal of Multivariate Analysis, Elsevier, vol. 84(1), pages 61-84, January.
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  19. 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.
  20. Lee, Keun Yeong, 2006. "The contemporaneous interactions between the U.S., Japan, and Hong Kong stock markets," Economics Letters, Elsevier, vol. 90(1), pages 21-27, January.
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Citations

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Cited by:
  1. Volodymyr Perederiy, 2007. "Kombinierte Liquiditäts- und Solvenzkennzahlen und ein darauf basierendes Insolvenzprognosemodell für deutsche GmbHs," SFB 649 Discussion Papers SFB649DP2007-060, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  2. Pami Dua & Divya Tuteja, 2013. "Interdependence Of International Financial Market-- The Case Of India And U.S," Working papers 223, Centre for Development Economics, Delhi School of Economics.

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