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In the Shadow of the United States: The International Transmission Effect of Asset Returns

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  • Chang, Kuang Liang
  • Chen, Nan Kuang
  • Leung, Charles Ka Yui

Abstract

We examine how the fluctuations in financial and housing markets in U.S. affect the asset returns and GDP in Hong Kong. In contrast to the results from linear specifications, which concludes that the U.S. and Hong Kong are virtually delinked in terms of the asset markets, our regime-switching models indicate that the unexpected shock of US stock returns, followed by the TED spread, has the most significant effect on HK asset returns and GDP, typically in the regime with high return and low volatility. For the in-sample one-step-ahead forecasting, US Term spread stands out to be the best predictor.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 32776.

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Date of creation: 2011
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Handle: RePEc:pra:mprapa:32776

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Keywords: currency board; fixed nominal exchange rate; international transmission mechanism; hierarchical Markov regime-switching model; vector autoregressive model;

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Cited by:
  1. Charles Ka Yui Leung & Patrick Wai Yin Cheung & Edward Chi Ho Tang, 2013. "Financial Crisis and the Co-movements of Housing Sub-markets: Do relationships change after a crisis?," International Real Estate Review, Asian Real Estate Society, vol. 16(1), pages 68-118.

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