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Explaining Movements in UK Stock Prices: How Important is the US Market?

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  • N Aslanidis
  • D R Osborn
  • M Sensier

Abstract

This paper provides evidence on the causes of movements in monthly UK stock prices, examining the role of macroeconomic and financial variables in a nonlinear framework. We allow for time-varying effects through the use of smooth transition models. We find that past changes in the dividend yield are an important transition variable, with current US stock market price changes providing a second nonlinear influence. This model explains the declines in the UK market since 2000, whereas a competing model excluding current US prices does not. The conclusion is that the principal explanation of recent declines in the UK lies in the nonlinear influence of declines in the US, and not the domestic economic environment.
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Suggested Citation

  • N Aslanidis & D R Osborn & M Sensier, 2003. "Explaining Movements in UK Stock Prices: How Important is the US Market?," Economics Discussion Paper Series 0305, Economics, The University of Manchester.
    • Handle: RePEc:man:sespap:0305
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    Cited by:

    1. Don Bredin & Stuart Hyde, 2008. "Regime Change and the Role of International Markets on the Stock Returns of Small Open Economies," European Financial Management, European Financial Management Association, vol. 14(2), pages 315-346, March.
    2. Andreas Röthig, 2009. "Microeconomic Risk Management and Macroeconomic Stability," Lecture Notes in Economics and Mathematical Systems, Springer, number 978-3-642-01565-6, March.
    3. Jamilu Said Babangida, 2023. "Nonlinearity in emerging market indices: A comprehensive study of stock exchange market dynamics," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 72, pages 23-37.
    4. Massimo Guidolin & Stuart Hyde, 2009. "What tames the Celtic Tiger? Portfolio implications from a Multivariate Markov Switching model," Applied Financial Economics, Taylor & Francis Journals, vol. 19(6), pages 463-488.

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