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Explaining movements in UK stock prices: How important is the US market?

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Author Info
N Aslanidis
D R Osborn
M Sensier

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Abstract

This paper provides evidence on the causes of movements in monthly UK stock prices, examining the role of macroeconomic and financial variables in a nonlinear framework. We allow for time-varying effects through the use of smooth transition models. We find that past changes in the dividend yield are an important transition variable, with current US stock market price changes providing a second nonlinear influence. This model explains the declines in the UK market since 2000, whereas a competing model excluding current US prices does not. The conclusion is that the principal explanation of recent declines in the UK lies in the nonlinear influence of declines in the US, and not the domestic economic environment.

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File URL: http://www.socialsciences.manchester.ac.uk/cgbcr/dpcgbcr/dpcgbcr27.pdf
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Publisher Info
Paper provided by Economics, The Univeristy of Manchester in its series Centre for Growth and Business Cycle Research Discussion Paper Series with number 27.

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Length: 42 pages
Date of creation: 2003
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Handle: RePEc:man:cgbcrp:27

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Related research
Keywords: regime-switching models smooth transition autoregressive models; linearity tests; model evaluation; financial time series;

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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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(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. Massimo Guidolin & Stuart Hyde, 2007. "What tames the Celtic tiger? portfolio implications from a multivariate Markov switching model," Working Papers 2006-029, Federal Reserve Bank of St. Louis. [Downloadable!]
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