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

See all articles by Giovanna Paladino

Giovanna Paladino

IntesaSanpaolo; LUISS Economics Department

Giulio Cifarelli

DISEI University of Florence

Date Written: September 2000

Abstract

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

Paladino, Giovanna and Cifarelli, Giulio, Stock Market Exuberance: Linkages between U.S. And the European Markets (September 2000). Quaderni di Ricerca LUISS Working Paper No. 121. Available at SSRN: https://ssrn.com/abstract=557218 or http://dx.doi.org/10.2139/ssrn.557218

Giovanna Paladino (Contact Author)

IntesaSanpaolo ( email )

Piazza San Carlo
Torino, 10121
Italy

LUISS Economics Department ( email )

Viale di Villa Massimo, 57
Rome, 00161
Italy

Giulio Cifarelli

DISEI University of Florence ( email )

via delle Pandette 9
Florence 50127
Italy

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