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Smooth Transition Regression Models in UK Stock Returns

Author

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  • Nektarios Aslanidis

    (Department of Economics, University of Crete, Greece)

Abstract

This paper models UK stock market returns in a smooth transition regression (STR) framework. A variety of financial and macroeconomic series are employed that are assumed to influence UK stock returns, namely GDP, interest rates, inflation, money supply and US stock prices. STR models are estimated where the linearity hypothesis is strongly rejected for at least one transition variable. These non-linear models describe the in-sample movements of the stock returns series better than the corresponding linear model. Moreover, the US stock market appears to play an important role in determining the UK stock market returns regime.

Suggested Citation

  • Nektarios Aslanidis, 2002. "Smooth Transition Regression Models in UK Stock Returns," Working Papers 0201, University of Crete, Department of Economics.
  • Handle: RePEc:crt:wpaper:0201
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    File URL: http://economics.soc.uoc.gr/wpa/docs/Aslanidis_2002a.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Giorgio Valente & Lucio Sarno, 2005. "Modelling and forecasting stock returns: exploiting the futures market, regime shifts and international spillovers," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(3), pages 345-376.
    2. Mei-Se Chien, 2013. "The Non-linear Ripple Effect of Housing Prices in Taiwan: A Smooth Transition Regressive Model," ERES eres2013_51, European Real Estate Society (ERES).
    3. Alenka Kavkler & Mejra Festić, 2011. "Modelling Stock Exchange Index Returns in Different GDP Growth Regimes," Prague Economic Papers, University of Economics, Prague, vol. 2011(1), pages 3-22.
    4. Yen-Hsien Lee & Chien-Liang Chiu, 2010. "Nonlinear adjustment of short-term deviations impacts on the US real estate market," Applied Economics Letters, Taylor & Francis Journals, vol. 17(6), pages 597-603.
    5. Kulaksizoglu, Tamer & Kulaksizoglu, Sebnem, 2009. "The U.S. Excess Money Growth and Inflation Relation in the Long-Run: A Nonlinear Analysis," MPRA Paper 23780, University Library of Munich, Germany.
    6. Neil Kellard & John Nankervis & Fotis Papadimitriou, 2007. "Predicting the UK Equity Premium with Dividend Ratios: An Out-Of-Sample Recursive Residuals Graphical Approach," Money Macro and Finance (MMF) Research Group Conference 2006 129, Money Macro and Finance Research Group.

    More about this item

    Keywords

    smooth transition regression models; linearity tests; forecasting; stock returns.;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications

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