Stock Market Exuberance: Linkages between U.S. And the European Markets
Quaderni di Ricerca LUISS Working Paper No. 121
27 Pages Posted: 22 Jun 2004
Date Written: September 2000
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.
Keywords: Equity market, arbitrage, GARCH
JEL Classification: F30, F40, G15
Suggested Citation: Suggested Citation