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Linear and Nonlinear Dependence Models of Stock Market Returns

19 Pages Posted: 13 Mar 2005  

Andreia Teixeira Dionisio

Universidade de Évora - Department of Management

Diana Mendes

University Institute of Lisbon (IUL) - Department of Quantitative Methods

Rui Menezes

University Institute of Lisbon (IUL) - Department of Quantitative Methods

Jacinto Vidigal da Silva

Universidade de Évora - Department of Management

Date Written: 01/2005

Abstract

The main objective of this paper is to assess how mutual information as a measure of global dependence between stock markets and macroeconomic factors can overcome some of the weaknesses of the traditional linear approaches commonly used in this context. One of the advantages of mutual information is that it does not require any prior assumption regarding the specification of a theoretical probability distribution or the specification of the dependence model. This study focuses on the Portuguese stock market where we evaluate the relevance of the macroeconomic and financial variables as determinants of the stock prices behaviour.

Keywords: Nonlinear dependence, mutual information, macroeconomic and financial factors

JEL Classification: C14, C22, C32, G14

Suggested Citation

Dionisio, Andreia Teixeira and Mendes, Diana and Menezes, Rui and Vidigal da Silva, Jacinto, Linear and Nonlinear Dependence Models of Stock Market Returns (01/2005). Available at SSRN: https://ssrn.com/abstract=668001 or http://dx.doi.org/10.2139/ssrn.668001

Andreia Teixeira Dionisio (Contact Author)

Universidade de Évora - Department of Management ( email )

Largo dos Colegiais, 2
Evora, 7000
Portugal

Diana Mendes

University Institute of Lisbon (IUL) - Department of Quantitative Methods ( email )

Av. Forcas Armadas
Lisbon, 1649-025
Portugal

Rui Menezes

University Institute of Lisbon (IUL) - Department of Quantitative Methods ( email )

Av. Forcas Armadas
Lisbon, 1649-025
Portugal

Jacinto Vidigal da Silva

Universidade de Évora - Department of Management ( email )

Largo dos Colegiais, 2
Evora, 7000
Portugal

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