Stock Market Exuberance: Linkages between U.S. and the European Markets
IntesaSanpaolo; LUISS Economics Department
University of Florence - Dipartimento di Scienze Economiche
Quaderni di Ricerca LUISS Working Paper No. 121
This paper investigates the high frequency behaviour of US, British and German stock market exuberance using an index provided by standard portfolio arbitrage relationships. Symmetric and asymmetric multivariate GARCH models are implemented to quantify international volatility comovements. In the period from January 1992 to April 2000 a change in the pattern of volatility transmission is detected at the beginning of summer 1997. Empirical analysis suggests that equity markets volatility modelling with exuberance indexes is more accurate than modelling with stock returns. Furthermore, the estimated conditional covariances between exuberance indexes fluctuate over time and tend to rise whenever volatility increases.
Number of Pages in PDF File: 27
Keywords: Equity market, arbitrage, GARCH
JEL Classification: F30, F40, G15working papers series
Date posted: June 22, 2004
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