The Connection of Stock Markets Between Germany and the USA: New Evidence From a Co-integration Study
AbstractThis paper uses an empirical connection between real stock market indices of Germany and the USA for forecasting corresponding returns. We are starting from the random walk as the traditional forecasting model in stock market applications, extending it by co-integration. Since the cointegrating relation considers information about a systematic link between the stock market indices, containing a common stochastic trend of both, differences from the random walk occur particularly in the long run. Thus, the estimation period shows that with increasing forecasting horizon predictability of simple real returns of the German stock market gets more accurate than reflected traditionally. --
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Bibliographic InfoPaper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 03-36.
Date of creation: 2003
Date of revision:
Co-integration of international stock markets; random walk; discretely and continuously compounded returns; impulse responses;
Find related papers by JEL classification:
- F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
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