Regime-Dependent Relationships Among the Stock Markets of the US, Australia, and New Zealand: A Markov Switching VAR Approach

29 Pages Posted: 6 Jun 2011

See all articles by Zhuo Qiao

Zhuo Qiao

University of Macau

Yuming Li

California State University

Wing-Keung Wong

Asia University, Department of Finance

Date Written: Janunary 11, 2010

Abstract

Adopting a MS-VAR model (Krolzig, 1997) and a recently developed regime-dependent impulse response analysis technique (Ehrmann, et al., 2003), this paper investigates the dynamic relationships among the stock markets of the US, Australia and New Zealand. Our results reveal the existence of two different regimes in the three stock markets. We find that the correlations among the three markets are significantly higher in a bear regime than in a bull regime. The responses of the three markets to shocks in other markets are stronger and more persistent in the bear regime than in the bull regime. Finally, our findings imply that the Australian stock market is more influential than the US stock market for the New Zealand stock market and the US stock market is more influential than the New Zealand stock market for the Australian stock market, while the Australian stock market is more influential than the New Zealand stock market for the US stock market.

Keywords: Markov Switching VAR, Regime-dependent Impulse Response, Hansen Test

JEL Classification: F36, G15, G11

Suggested Citation

Qiao, Zhuo and Li, Yuming and Wong, Wing-Keung, Regime-Dependent Relationships Among the Stock Markets of the US, Australia, and New Zealand: A Markov Switching VAR Approach (Janunary 11, 2010). Available at SSRN: https://ssrn.com/abstract=1858381 or http://dx.doi.org/10.2139/ssrn.1858381

Zhuo Qiao (Contact Author)

University of Macau ( email )

P.O. Box 3001
Macau

Yuming Li

California State University ( email )

School of Business Box 6848
Fullerton, CA 92834-9480
United States
714-278-2217 (Phone)
714-278-2161 (Fax)

Wing-Keung Wong

Asia University, Department of Finance ( email )

Taiwan
Taiwan

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