Explaining movements in UK stock prices: How important is the US market?
AbstractThis 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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Bibliographic InfoPaper provided by Economics, The Univeristy of Manchester in its series Centre for Growth and Business Cycle Research Discussion Paper Series with number 27.
Length: 42 pages
Date of creation: 2003
Date of revision:
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regime-switching models smooth transition autoregressive models; linearity tests; model evaluation; financial time series;
Other versions of this item:
- N Aslanidis & D R Osborn & M Sensier, 2003. "Explaining Movements in UK Stock Prices: How Important is the US Market?," The School of Economics Discussion Paper Series 0305, Economics, The University of Manchester.
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- Massimo Guidolin & Stuart Hyde, 2007.
"What tames the Celtic tiger? portfolio implications from a multivariate Markov switching model,"
2006-029, Federal Reserve Bank of St. Louis.
- Massimo Guidolin & Stuart Hyde, 2009. "What tames the Celtic Tiger? Portfolio implications from a Multivariate Markov Switching model," Applied Financial Economics, Taylor & Francis Journals, vol. 19(6), pages 463-488.
- Don Bredin & Stuart Hyde, 2008. "Regime Change and the Role of International Markets on the Stock Returns of Small Open Economies," European Financial Management, European Financial Management Association, vol. 14(2), pages 315-346.
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