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Financial Markets Interactions between Economic Theory and Practice

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  • Nicolau, Mihaela

Abstract

During the last decades many financial analysts, either theorists or practitioners, have dedicated their studies to the interactions between different financial sectors. The results of these researches confirm that commodities, bonds and stock markets are closely related, therefore a thorough analysis of one should includes considerations of the other two. The aim of this article is to demonstrate that, even if from the theoretical point of view financial markets present typical and strong correlations between them, under economic turmoil the correlations change their signs. Both elementary rules of economic theory and examples with real time series are used in the demonstration. The results of our research emphasize that a simple theoretical analysis of financial markets’ behaviour through inflation and interest rates cannot define the real interactions of the markets and more robust research approaches are required.

Suggested Citation

  • Nicolau, Mihaela, 2010. "Financial Markets Interactions between Economic Theory and Practice," MPRA Paper 27322, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:27322
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    More about this item

    Keywords

    financial markets; correlation coefficient; inflation; interest rates; commodities; bonds; stocks; oil price.;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • E39 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Other
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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