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Structural VAR identification in asset markets using short-run market inefficiencies

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  • Gultekin Isiklar

    (State University of New York at Albany)

Abstract

We 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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File URL: http://128.118.178.162/eps/em/papers/0501/0501001.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Econometrics with number 0501001.

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Length: 25 pages
Date of creation: 01 Jan 2005
Date of revision: 02 Jan 2005
Handle: RePEc:wpa:wuwpem:0501001

Note: Type of Document - pdf; pages: 25
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Web page: http://128.118.178.162

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Keywords: Structural VAR; Overreaction and Underreaction; Stock Market;

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  1. Nicholas Barberis & Andrei Shleifer & Robert W. Vishny, 1997. "A Model of Investor Sentiment," NBER Working Papers 5926, National Bureau of Economic Research, Inc.
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  10. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 665-690, April.
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  13. Eun, Cheol S. & Shim, Sangdal, 1989. "International Transmission of Stock Market Movements," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 24(02), pages 241-256, June.
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