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Structural VAR identification in asset markets using short-run market inefficiencies

Author

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  • Gultekin Isiklar

    (State University of New York at Albany)

Abstract

We impose a structure on the short-run market inefficiencies in the asset markets and use this structure to identify a structural vector autoregressive model. This novel identification method is based on more reasonable assumptions than the standard approaches and also gives estimates for inefficiency measures in the markets, which are important on their own. Applying our method on the major European stock markets, we find that while the UK shocks were dominant in Europe until 1999, German innovations have been more important since 1999. We also find that the pattern of inefficiencies are consistent with the rational inattention model of Sims (2003).

Suggested Citation

  • Gultekin Isiklar, 2005. "Structural VAR identification in asset markets using short-run market inefficiencies," Econometrics 0501001, EconWPA, revised 02 Jan 2005.
  • Handle: RePEc:wpa:wuwpem:0501001
    Note: Type of Document - pdf; pages: 25
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    References listed on IDEAS

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    More about this item

    Keywords

    Structural VAR; Overreaction and Underreaction; Stock Market;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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