Measuring Co-movements Between US and European Stock Markets

Abstract:     
In this paper we concentrate on the consequences for the European stock market of a correction of the US Stock market. We explicitly consider the distinction between interdependence and contagion. We provide separate answers to the following questions:(i) is there long-term interdependence between US and Europe, i.e. does the equilibrium for European shares depend on the equilibrium for US shares? (ii) Is there short-term interdependence and contagion between US and European stock markets, i.e do short term fluctuations of the US share prices spill over to European share prices and is such co-movement stable in occasion of the occurrence of high volatility episodes?

Keywords: Contagion, Stock Market, Interdependence, Structural Models

JEL Classifications: F30, F40, G15

Working Paper Series