Document Type

Journal Article

Department/Unit

Department of Economics

Title

Regime-dependent relationships among the stock markets of the US, Australia and New Zealand: A Markov-switching VAR approach

Language

English

Abstract

Adopting a multivariate Markov-switching-VAR model (Krolzig, 1997) and a recently developed regime-dependent impulse response analysis technique (Ehrmann et al., 2003), this article 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. In addition, the responses of each of the three markets to shocks in the other two markets are stronger and more persistent in the bear regime than in the bull regime. Finally, our findings imply that for the New Zealand stock market, the Australian stock market is more influential than the US stock market, and for the Australian stock market, the US stock market is more influential than the New Zealand stock market. © 2011 Taylor & Francis.

Keywords

Dynamic relationships, Hansen test, Markov switching VAR, Regime-dependent impulse response, Stock markets

Publication Date

2011

Source Publication Title

Applied Financial Economics

Volume

21

Issue

24

Start Page

1831

End Page

1841

Publisher

Taylor & Francis

DOI

10.1080/09603107.2011.595678

ISSN (print)

09603107

ISSN (electronic)

14664305

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