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Co-movements between US and UK stock prices: the role of time-varying conditional correlations

Author

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  • Nektarios Aslanidis

    (Department of Economics, University Rovira Virgili, Spain)

  • Denise R. Osborn

    (Centre for Growth and Business Cycles Research, Economics, School of Social Sciences, The University of Manchester, UK)

  • Marianne Sensier

    (Centre for Growth and Business Cycles Research, Economics, School of Social Sciences, The University of Manchester, UK)

Abstract

We provide evidence on the nature of co-movement in monthly US and UK stock returns by investigating time-varying correlations in returns since 1980. There is a marked increase in correlations between these markets around 2000, which we attribute to globalization and model with a time-varying smooth transition conditional correlation (STCC) GARCH specification. A double transition correlation model with time and US stock price volatility indicates that correlations not only increase over time but also during periods of high volatility. The STCC models perform well in comparison with constant and dynamic conditional correlation models in terms of both statistical and economic criteria, but we demonstrate that an investor will gain little from portfolio diversification across these two important markets. Copyright © 2009 John Wiley & Sons, Ltd.

Suggested Citation

  • Nektarios Aslanidis & Denise R. Osborn & Marianne Sensier, 2010. "Co-movements between US and UK stock prices: the role of time-varying conditional correlations," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 15(4), pages 366-380.
    • Handle: RePEc:ijf:ijfiec:v:15:y:2010:i:4:p:366-380
    DOI: 10.1002/ijfe.402
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    3. M. Fatih Oztek & Nadir Ocal, 2012. "Integration of China Stock Markets with International Stock Markets: An application of Smooth Transition Conditional Correlation with Double Transition Functions," ERC Working Papers 1209, ERC - Economic Research Center, Middle East Technical University, revised Dec 2012.
    4. Cifarelli, Giulio & Paladino, Giovanna, 2020. "A non-linear analysis of the sovereign bank nexus in the EU," The Journal of Economic Asymmetries, Elsevier, vol. 21(C).
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    6. Tingting Lan & Liuguo Shao & Hua Zhang & Caijun Yuan, 2023. "The impact of pandemic on dynamic volatility spillover network of international stock markets," Empirical Economics, Springer, vol. 65(5), pages 2115-2144, November.
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