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Asymmetric Volatility Spillovers between Stock Market and Real Activity: Evidence from UK and US

  • Nikolaos Giannellis

    ()

    (Department of Economics, University of Crete, Greece)

  • Athanasios Papadopoulos

    ()

    (Department of Economics, University of Crete, Greece)

  • Angelos Kanas

    ()

    (Department of Economics, University of Crete, Greece)

By estimating bivariate EGARCH (2, 1) models, we find significant short run dynamic relations between stock market and real activity for the UK and the US over the period 1970-2002. There is evidence of significant reciprocal volatility spillovers between the two sectors within a country, implying stronger interdependencies in UK rather than in US. Volatility spillovers, transmitted via the balance sheet channel, are found to be asymmetric only in the case of UK. Namely, a negative shock in the stock market increases volatility in the real economy more than a positive shock.

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File URL: http://economics.soc.uoc.gr/wpa/docs/Giannellis_et_al_AFE_.pdf
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Paper provided by University of Crete, Department of Economics in its series Working Papers with number 0807.

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Length: 17 pages
Date of creation: 20 Jun 2008
Date of revision:
Handle: RePEc:crt:wpaper:0807
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  1. Nikiforos T. Laopodis, 2006. "Dynamic Interactions among the Stock Market, Federal Funds Rate, Inflation, and Economic Activity," The Financial Review, Eastern Finance Association, vol. 41(4), pages 513-545, November.
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  7. MacKinnon, James G & Haug, Alfred A & Michelis, Leo, 1999. "Numerical Distribution Functions of Likelihood Ratio Tests for Cointegration," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(5), pages 563-77, Sept.-Oct.
  8. Rapach, David E., 2001. "Macro shocks and real stock prices," Journal of Economics and Business, Elsevier, vol. 53(1), pages 5-26.
  9. Schwert, G William, 1990. " Stock Returns and Real Activity: A Century of Evidence," Journal of Finance, American Finance Association, vol. 45(4), pages 1237-57, September.
  10. Robert F. Engle & Victor K. Ng, 1991. "Measuring and Testing the Impact of News on Volatility," NBER Working Papers 3681, National Bureau of Economic Research, Inc.
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  12. Koutmos, Gregory & Booth, G Geoffrey, 1995. "Asymmetric volatility transmission in international stock markets," Journal of International Money and Finance, Elsevier, vol. 14(6), pages 747-762, December.
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