Structural VAR identification in asset markets using short-run market inefficiencies
AbstractWe impose a structure on the short-run market inefficiencies in the asset markets and use this structure to identify a structural vector autoregressive model. This novel identification method is based on more reasonable assumptions than the standard approaches and also gives estimates for inefficiency measures in the markets, which are important on their own. Applying our method on the major European stock markets, we find that while the UK shocks were dominant in Europe until 1999, German innovations have been more important since 1999. We also find that the pattern of inefficiencies are consistent with the rational inattention model of Sims (2003).
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Bibliographic InfoPaper provided by EconWPA in its series Econometrics with number 0501001.
Length: 25 pages
Date of creation: 01 Jan 2005
Date of revision: 02 Jan 2005
Note: Type of Document - pdf; pages: 25
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Structural VAR; Overreaction and Underreaction; Stock Market;
Find related papers by JEL classification:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
- D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-01-09 (All new papers)
- NEP-CFN-2005-01-09 (Corporate Finance)
- NEP-ECM-2005-01-09 (Econometrics)
- NEP-EEC-2005-01-09 (European Economics)
- NEP-ETS-2005-01-09 (Econometric Time Series)
- NEP-FMK-2005-01-09 (Financial Markets)
- NEP-RMG-2005-01-09 (Risk Management)
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