The comovement of US and UK stock markets
US and UK stock returns are highly positively correlated over the period 1918-1999. Using VAR-based variance decompositions, we investigate the nature of this comovement. Excess return innovations are decomposed into news about future dividends, real interest rates, and excess returns. We find that the latter news component is the most important in explaining stock return volatility in both the US and the UK and that stock return news is highly correlated across countries. This is evidence against Beltratti and Shiller's (1993) finding that the comovement of US and UK stock markets can be explained in terms of a simple present value model. We interpret the comovement as indicating that equity premia in the two countries are hit by common real stocks.
|Date of creation:||01 Jan 2002|
|Contact details of provider:|| Postal: The Aarhus School of Business, Fuglesangs Allé 4, DK-8210 Aarhus V, Denmark|
Fax: + 45 86 15 19 43
Web page: http://www.asb.dk/about/departments/bs.aspx
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:hhb:aarfin:2002_001. 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: (Helle Vinbaek Stenholt)
If references are entirely missing, you can add them using this form.