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Asymmetric effects of U.S. stock returns on European equities

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  • Wahab, Mahmoud

Abstract

An asymmetric conditional mean returns model describing co-movements of three major European stock markets with the U.S. stock market is estimated. Multivariate conditional heteroskedasticity is captured by a VAR(p)-MGARCH(p,q)-BEKK parameterization. Conditional Sharpe ratios from alternative mean-volatility specifications are compared with multivariate t-tests. Results consistently indicate that France has offered the best risk-adjusted returns compared to the U.K. or Germany taken from a U.S. investor's viewpoint. All three European markets show a tendency to move counter-cyclically with the U.S. market, on average, suggesting ongoing substitution by global investors between U.S. and major European equities. Unconditional Sharpe ratios understate conditional Sharpe ratios for each market.

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  • Wahab, Mahmoud, 2012. "Asymmetric effects of U.S. stock returns on European equities," International Review of Economics & Finance, Elsevier, vol. 21(1), pages 156-172.
    • Handle: RePEc:eee:reveco:v:21:y:2012:i:1:p:156-172
    DOI: 10.1016/j.iref.2011.05.007
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    Cited by:

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    3. Tsai, Hui-Ju, 2014. "The informational efficiency of bonds and stocks: The role of institutional sized bond trades," International Review of Economics & Finance, Elsevier, vol. 31(C), pages 34-45.

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    More about this item

    Keywords

    Asymmetry; multivariate; MGARCH; conditional;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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