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Asymmetric effects of U.S. stock returns on European equities

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  • Wahab, Mahmoud

Abstract

An asymmetric conditional mean returns model describing co-movements of three major European stock markets with the U.S. stock market is estimated. Multivariate conditional heteroskedasticity is captured by a VAR(p)-MGARCH(p,q)-BEKK parameterization. Conditional Sharpe ratios from alternative mean-volatility specifications are compared with multivariate t-tests. Results consistently indicate that France has offered the best risk-adjusted returns compared to the U.K. or Germany taken from a U.S. investor's viewpoint. All three European markets show a tendency to move counter-cyclically with the U.S. market, on average, suggesting ongoing substitution by global investors between U.S. and major European equities. Unconditional Sharpe ratios understate conditional Sharpe ratios for each market.

Suggested Citation

  • Wahab, Mahmoud, 2012. "Asymmetric effects of U.S. stock returns on European equities," International Review of Economics & Finance, Elsevier, vol. 21(1), pages 156-172.
    • Handle: RePEc:eee:reveco:v:21:y:2012:i:1:p:156-172
    DOI: 10.1016/j.iref.2011.05.007
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    3. Guo, Junjie & Li, Xuelian & Zhang, Weiran & Li, Youshu, 2024. "Monetary policy spillovers among five systemic economies: Evidence from the time and frequency domains," The North American Journal of Economics and Finance, Elsevier, vol. 70(C).
    4. Jin, Xiaoye, 2015. "Asymmetry in return and volatility spillover between China's interbank and exchange T-bond markets," International Review of Economics & Finance, Elsevier, vol. 37(C), pages 340-353.

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    More about this item

    Keywords

    Asymmetry; multivariate; MGARCH; conditional;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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