Are Different National Stock Markets Driven by the Same Stochastic Hidden Variable?
The following contribution analyzes linkages between preselected national stock markets by a multivariate application of Markov-Switching models. This study shows evidence that the US-stock market and the German and Swedish stock markets are driven by the same unobservable stochastic variable. The latent variable causes these stock markets to switch between highly persistent Bull- and Bear-market regimes which offer strategic market timing opportunities. An out-of-sample experiment where stock market regimes are simultaneously forecasted on a monthly frequency (January 2008 – December 2010) shows that an actively managed equity funds being restricted to hold stocks permanently, dominates all passive trading strategies that account for internationally diversified equity portfolios.
Volume (Year): 03 (2011)
Issue (Month): 1 (June)
|Contact details of provider:|| Postal: Strada Mihai Eminescu nr.13-15, sector 1, Bucuresti, Romania|
Web page: http://www.fin.ase.ro/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Klaus Grobys, 2010. "Have volatility spillover effects of cointegrated European stock markets increased over time?," The Review of Finance and Banking, Academia de Studii Economice din Bucuresti, Romania / Facultatea de Finante, Asigurari, Banci si Burse de Valori / Catedra de Finante, vol. 2(2), pages 083-94, December.
- Kristin J. Forbes & Roberto Rigobon, 2002.
"No Contagion, Only Interdependence: Measuring Stock Market Comovements,"
Journal of Finance,
American Finance Association, vol. 57(5), pages 2223-2261, October.
- Kristin Forbes & Roberto Rigobon, 1999. "No Contagion, Only Interdependence: Measuring Stock Market Co-movements," NBER Working Papers 7267, National Bureau of Economic Research, Inc.
- Stijn Claessens & M. Ayhan Kose & Marco E. Terrones, 2009.
"What happens during recessions, crunches and busts?,"
CEPR;CES;MSH, vol. 24, pages 653-700, October.
- Marco Terrones & Ayhan Kose & Stijn Claessens, 2008. "What Happens During Recessions, Crunches and Busts?," IMF Working Papers 08/274, International Monetary Fund.
- Claessens, Stijn & Kose, Ayhan & Terrones, Marco E, 2008. "What Happens During Recessions, Crunches and Busts?," CEPR Discussion Papers 7085, C.E.P.R. Discussion Papers.
- Engle, Robert F & Granger, Clive W J, 1987.
"Co-integration and Error Correction: Representation, Estimation, and Testing,"
Econometric Society, vol. 55(2), pages 251-76, March.
- Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
- Ang, Andrew & Bekaert, Geert, 2002.
"Regime Switches in Interest Rates,"
Journal of Business & Economic Statistics,
American Statistical Association, vol. 20(2), pages 163-82, April.
- Francis, Bill B. & Leachman, Lori L., 1998. "Superexogeneity and the dynamic linkages among international equity markets," Journal of International Money and Finance, Elsevier, vol. 17(3), pages 475-492, June.
- Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-84, March.
- King, Mervyn & Sentana, Enrique & Wadhwani, Sushil, 1994.
"Volatility and Links between National Stock Markets,"
Econometric Society, vol. 62(4), pages 901-33, July.
- Mervyn King & Enrique Sentana & Sushil Wadhwani, 1990. "Volatiltiy and Links Between National Stock Markets," NBER Working Papers 3357, National Bureau of Economic Research, Inc.
- Bachman, Daniel & Choi, Jongmoo Jay & Jeon, Bang Nan & Kopecky, Kenneth J., 1996. "Common factors in international stock prices: Evidence from a cointegration study," International Review of Financial Analysis, Elsevier, vol. 5(1), pages 39-53.
- Richards, Anthony J., 1995.
"Comovements in national stock market returns: Evidence of predictability, but not cointegration,"
Journal of Monetary Economics,
Elsevier, vol. 36(3), pages 631-654, December.
- Anthony J. Richards, 1996. "Comovements in National Stock Market Returns; Evidence of Predictability But Not Cointegration," IMF Working Papers 96/28, International Monetary Fund.
- Corhay, A. & Tourani Rad, A. & Urbain, J. -P., 1993. "Common stochastic trends in European stock markets," Economics Letters, Elsevier, vol. 42(4), pages 385-390.
- N/A, 2009. "On the Recession," Local Economy, London South Bank University, vol. 24(3), pages 253-253, May.
- Gabriel Perez-Quiros & Allan Timmermann, 2000.
"Firm Size and Cyclical Variations in Stock Returns,"
Journal of Finance,
American Finance Association, vol. 55(3), pages 1229-1262, 06.
- Allan Timmermann & Gabriel Perez-Quiros, 1999. "Firm Size and Cyclical Variations in Stock Returns," FMG Discussion Papers dp335, Financial Markets Group.
- Gonzalez, Liliana & Powell, John G. & Shi, Jing & Wilson, Antony, 2005. "Two centuries of bull and bear market cycles," International Review of Economics & Finance, Elsevier, vol. 14(4), pages 469-486.
- Voronkova, Svitlana, 2004. "Equity market integration in Central European emerging markets: A cointegration analysis with shifting regimes," International Review of Financial Analysis, Elsevier, vol. 13(5), pages 633-647.
- Timmermann, Allan, 2000.
"Moments of Markov switching models,"
Journal of Econometrics,
Elsevier, vol. 96(1), pages 75-111, May.
- Guidolin, Massimo & Timmermann, Allan, 2007.
"Asset allocation under multivariate regime switching,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 31(11), pages 3503-3544, November.
- Massimo Guidolin & Allan Timmerman, 2006. "Asset allocation under multivariate regime switching," Working Papers 2005-002, Federal Reserve Bank of St. Louis.
- Gikas A. Hardouvelis & Dimitrios Malliaropulos & Richard Priestley, 2006.
"EMU and European Stock Market Integration,"
The Journal of Business,
University of Chicago Press, vol. 79(1), pages 365-392, January.
- Carol Alexander & Anca Dimitriu, 2005. "Indexing, cointegration and equity market regimes," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 10(3), pages 213-231.
- Campbell, Rachel & Koedijk, Kees & Kofman, Paul, 2002. "Increased Correlation in Bear markets: A Downside Risk Perspective," CEPR Discussion Papers 3172, C.E.P.R. Discussion Papers.
- Rousova, Linda, 2009. "Are the Central European Stock Markets Still Different? A Cointegration Analysis," Discussion Papers in Economics 10993, University of Munich, Department of Economics.
- Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
- Kasa, Kenneth, 1992. "Common stochastic trends in international stock markets," Journal of Monetary Economics, Elsevier, vol. 29(1), pages 95-124, February.
When requesting a correction, please mention this item's handle: RePEc:rfb:journl:v:03:y:2011:i:1:p:021-030. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Tatu Lucian)
If references are entirely missing, you can add them using this form.