Explaining Co-Movements between Stock Markets: The Case of Us and Germany
Posted: 21 Sep 2006
Abstract
We explain co-movements between stock markets by explicitly considering the distinction between interdependence and contagion. We propose and implement a full information approach on data for US and Germany to provide answers to the following questions: (i) is there long-term interdependence between US and German stock markets? (ii) Is there short-term interdependence and contagion between US and German stock markets, i.e do short term fluctuations of the US share prices spill over to German share prices and is such co-movement unstable over high volatility episodes? Our answers are, respectively, no to the first question and yes to the second one.
Keywords: Contagion, Stock Market, Interdependence, Structural Models
JEL Classification: F30, F40, G15
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