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Canadian and U.S. Financial Markets: Testing the International Integration Hypothesis Under Time-Varying Conditional Volatility

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Author Info
Michel Normandin () (IEA, HEC Montréal)

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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. Under time-varying conditional volatility, this hypothesis can be tested by verifying the equality between domestic and foreign risk prices associated with 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 of two factors, which seem intimately related to certain nonmonetary events and to the conduct of monetary policies.

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Publisher Info
Paper provided by HEC Montréal, Institut d'économie appliquée in its series Cahiers de recherche with number 03-08.

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Length: 34 pages
Date of creation: Nov 2003
Date of revision:
Handle: RePEc:iea:carech:0308

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Postal: Institut d'économie appliquée HEC Montréal 3000, Chemin de la Côte-Sainte-Catherine Montréal, Québec H3T 2A7
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Related research
Keywords: Conditional Heteroscedasticity; Kalman Filter; Maximum Likelihood; Monetary Policies; Prices of Risk; Unspecified Factors.;

Other versions of this item:

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

This paper has been announced in the following NEP Reports:

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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    Other versions:
  18. Strongin, Steven, 1995. "The identification of monetary policy disturbances explaining the liquidity puzzle," Journal of Monetary Economics, Elsevier, vol. 35(3), pages 463-497, June. [Downloadable!] (restricted)
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    Other versions:
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. Hafedh Bouakez & Michel Normandin, 2008. "Fluctuations in the Foreign Exchange Market: How Important are Monetary Policy Shocks?," Cahiers de recherche 0818, CIRPEE. [Downloadable!]
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