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Co-movements between US and UK stock prices: the roles of macroeconomic information and time-varying conditional correlations

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Author Info
Nektarios Aslanidis
Denise R. Osborn
Marianne Sensier

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Abstract

This paper develops an open-economy intertemporal growth model with We provide evidence on the sources of co-movement in monthly US and UK stock returns by investigating the role of macroeconomic and financial variables in a model with time-varying correlations. Cross-country communality in response is uncovered, with changes in US Federal Funds rate, UK bond yields and oil prices having negative effects in both markets. These effects do not, however, explain the marked increase in correlations from around 2000, which we attribute to time variation in the correlations of shocks to these markets. A regime-switching model captures this time variation well and shows the correlations increase dramatically around 1999-2000

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File URL: http://www.socialsciences.manchester.ac.uk/cgbcr/dpcgbcr/dpcgbcr96.pdf
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Paper provided by Economics, The Univeristy of Manchester in its series Centre for Growth and Business Cycle Research Discussion Paper Series with number 96.

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Length: 35 pages
Date of creation: 2008
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Handle: RePEc:man:cgbcrp:96

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  13. Tse, Y K & Tsui, Albert K C, 2002. "A Multivariate Generalized Autoregressive Conditional Heteroscedasticity Model with Time-Varying Correlations," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(3), pages 351-62, July.
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  17. repec:cup:macdyn:v:4:y:2000:i:3:p:343-72 is not listed on IDEAS
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