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Regime Change and the Role of International Markets on the Stock Returns of Small Open Economies

  • Don Bredin
  • Stuart Hyde

"We examine the influence of US, UK and German macroeconomic and financial variables on the stock returns of two relatively small, open European economies, Ireland and Denmark. Within a nonlinear framework, we allow for time variation via regime switching using a smooth transition regression (STR) model. We find that US (global) and UK and German (regional) stock returns are significant determinants of returns in both markets. Further, global information represented by oil and US asset price movements drive changes between states in each market. Significantly, the role of country-specific domestic variables is typically confined to a single state while global and regional variables pervade all states." Copyright 2007 The Authors Journal compilation (c) 2007 Blackwell Publishing Ltd.

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Article provided by European Financial Management Association in its journal European Financial Management.

Volume (Year): 14 (2008)
Issue (Month): 2 ()
Pages: 315-346

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Handle: RePEc:bla:eufman:v:14:y:2008:i:2:p:315-346
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