IDEAS home Printed from https://ideas.repec.org/a/taf/eurjfi/v10y2004i2p139-148.html
   My bibliography  Save this article

Does the Euro affect the dynamic interactions of stock markets in Europe? Evidence from France, Germany and Italy

Author

Listed:
  • Frank Westermann

Abstract

The dynamic links between stock market indices are analyzed in a GARCH-M framework, using daily data from France, Germany, Italy and the USA. It is shown that indices in the periods before and after the introduction of the Euro as a single currency display a very distinct behaviour. Consistent with the literature, in the earlier period price changes are found to have an impact the next day on other markets. In the latter period this type of co-movement disappeared within Europe. Feedback trading has been shown to induce (negative) autocorrelation in national stock markets. In this paper an international version of the feedback trading model is used to illustrate that the lead-lag relationships across countries and the strength of these links depend on the currency regime.

Suggested Citation

  • Frank Westermann, 2004. "Does the Euro affect the dynamic interactions of stock markets in Europe? Evidence from France, Germany and Italy," The European Journal of Finance, Taylor & Francis Journals, vol. 10(2), pages 139-148.
    • Handle: RePEc:taf:eurjfi:v:10:y:2004:i:2:p:139-148
    DOI: 10.1080/1351847032000143378
    as

    Download full text from publisher

    File URL: http://www.tandfonline.com/doi/abs/10.1080/1351847032000143378
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/1351847032000143378?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Knif, Johan & Pynnonen, Seppo, 1999. "Local and global price memory of international stock markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 9(2), pages 129-147, April.
    2. Sentana, Enrique & Wadhwani, Sushil B, 1992. "Feedback Traders and Stock Return Autocorrelations: Evidence from a Century of Daily Data," Economic Journal, Royal Economic Society, vol. 102(411), pages 415-425, March.
    3. Levy, Haim & Sarnat, Marshall, 1970. "International Diversification of Investment Portfolios," American Economic Review, American Economic Association, vol. 60(4), pages 668-675, September.
    4. Glosten, Lawrence R & Jagannathan, Ravi & Runkle, David E, 1993. "On the Relation between the Expected Value and the Volatility of the Nominal Excess Return on Stocks," Journal of Finance, American Finance Association, vol. 48(5), pages 1779-1801, December.
    5. Cheung, Yin-Wong & Lai, Kon S, 1993. "Finite-Sample Sizes of Johansen's Likelihood Ration Tests for Conintegration," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 55(3), pages 313-328, August.
    6. Eun, Cheol S. & Shim, Sangdal, 1989. "International Transmission of Stock Market Movements," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 24(2), pages 241-256, June.
    7. Lo, Andrew W. & Craig MacKinlay, A., 1990. "An econometric analysis of nonsynchronous trading," Journal of Econometrics, Elsevier, vol. 45(1-2), pages 181-211.
    8. Yin-Wong Cheung & Kon Lai, 1999. "Macroeconomic determinants of long-term stock market comovements among major EMS countries," Applied Financial Economics, Taylor & Francis Journals, vol. 9(1), pages 73-85.
    9. Tim Bollerslev & Jeffrey M. Wooldridge, 1988. "Quasi-Maximum Likelihood Estimation of Dynamic Models with Time-Varying Covariances," Working papers 505, Massachusetts Institute of Technology (MIT), Department of Economics.
    10. G. Geoffrey Booth & Gregory Koutmos, 1998. "Interaction of volatility and autocorrelation in foreign stock returns," Applied Economics Letters, Taylor & Francis Journals, vol. 5(11), pages 715-717.
    11. Engle, Robert F & Lilien, David M & Robins, Russell P, 1987. "Estimating Time Varying Risk Premia in the Term Structure: The Arch-M Model," Econometrica, Econometric Society, vol. 55(2), pages 391-407, March.
    12. Grubel, Herbert G & Fadner, Kenneth, 1971. "The Interdependence of International Equity Markets," Journal of Finance, American Finance Association, vol. 26(1), pages 89-94, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Alenka Kavkler & Mejra Festić, 2011. "Modelling Stock Exchange Index Returns in Different GDP Growth Regimes," Prague Economic Papers, Prague University of Economics and Business, vol. 2011(1), pages 3-22.
    2. Tomoe Moore, 2007. "Has entry to the European Union altered the dynamic links of stock returns for the emerging markets?," Applied Financial Economics, Taylor & Francis Journals, vol. 17(17), pages 1431-1446.
    3. Sangita Choudhary & Shelly Singhal, 2020. "International linkages of Indian equity market: evidence from panel co-integration approach," Journal of Asset Management, Palgrave Macmillan, vol. 21(4), pages 333-341, July.
    4. Huyghebaert, Nancy & Wang, Lihong, 2010. "The co-movement of stock markets in East Asia: Did the 1997-1998 Asian financial crisis really strengthen stock market integration?," China Economic Review, Elsevier, vol. 21(1), pages 98-112, March.
    5. Bartram, Sohnke M. & Taylor, Stephen J. & Wang, Yaw-Huei, 2007. "The Euro and European financial market dependence," Journal of Banking & Finance, Elsevier, vol. 31(5), pages 1461-1481, May.
    6. Lupu, Dan & Asandului, Mircea, 2014. "Considerations on the relantionship between exchange rates and stock markets in Eastern Europe in time of crisis," MPRA Paper 95507, University Library of Munich, Germany.
    7. Ping Wang & Tomoe Moore, 2008. "Stock Market Integration For The Transition Economies: Time‐Varying Conditional Correlation Approach," Manchester School, University of Manchester, vol. 76(s1), pages 116-133, September.
    8. Demian, Calin-Vlad, 2011. "Cointegration in Central and East European markets in light of EU accession," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 21(1), pages 144-155, February.
    9. Fotini Economou & Konstantinos Gavriilidis & Bartosz Gebka & Vasileios Kallinterakis, 2022. "Feedback trading: a review of theory and empirical evidence," Review of Behavioral Finance, Emerald Group Publishing Limited, vol. 15(4), pages 429-476, February.
    10. Siv Taing & Andrew Worthington, 2005. "Return Relationships Among European Equity Sectors: A Comparative Analysis Across Selected Sectors in Small and Large Economies," Journal of Applied Economics, Taylor & Francis Journals, vol. 8(2), pages 371-388, November.
    11. Wang, Ping & Moore, Tomoe, 2009. "Sudden changes in volatility: The case of five central European stock markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 19(1), pages 33-46, February.
    12. Juneja, Januj, 2017. "How Germany benefits the most from its Eurozone membership," Research in International Business and Finance, Elsevier, vol. 42(C), pages 1074-1088.
    13. David Gray, 2014. "Central European foreign exchange markets: a cross-spectral analysis of the 2007 financial crisis," The European Journal of Finance, Taylor & Francis Journals, vol. 20(6), pages 550-567, June.
    14. Sangita Choudhary & Shelly Singhal, 0. "International linkages of Indian equity market: evidence from panel co-integration approach," Journal of Asset Management, Palgrave Macmillan, vol. 0, pages 1-9.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Thomas C. Chiang & Cathy W.S. Chen & Mike K.P. So, 2007. "Asymmetric Return and Volatility Responses to Composite News from Stock Markets," Multinational Finance Journal, Multinational Finance Journal, vol. 11(3-4), pages 179-210, September.
    2. Degiannakis, Stavros & Xekalaki, Evdokia, 2004. "Autoregressive Conditional Heteroskedasticity (ARCH) Models: A Review," MPRA Paper 80487, University Library of Munich, Germany.
    3. Frank Westermann, 2002. "Stochastic Trends and Cycles in National Stock Market Indices: Evidence from the U.S., the U.K. and Switzerland," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 138(III), pages 317-328, September.
    4. McKenzie, Michael D. & Kim, Suk-Joong, 2007. "Evidence of an asymmetry in the relationship between volatility and autocorrelation," International Review of Financial Analysis, Elsevier, vol. 16(1), pages 22-40.
    5. Tomoe Moore, 2007. "Has entry to the European Union altered the dynamic links of stock returns for the emerging markets?," Applied Financial Economics, Taylor & Francis Journals, vol. 17(17), pages 1431-1446.
    6. Koutmos, Gregory, 1998. "Asymmetries in the Conditional Mean and the Conditional Variance: Evidence From Nine Stock Markets," Journal of Economics and Business, Elsevier, vol. 50(3), pages 277-290, May.
    7. Christian Pierdzioch & Andrea Schertler, 2007. "Sources of Predictability of European Stock Markets for High-technology Firms," The European Journal of Finance, Taylor & Francis Journals, vol. 13(1), pages 1-27.
    8. Trino-Manuel Ñíguez, 2008. "Volatility and VaR forecasting in the Madrid Stock Exchange," Spanish Economic Review, Springer;Spanish Economic Association, vol. 10(3), pages 169-196, September.
    9. Martin T. Bohl & Pierre Siklos, 2004. "Empirical Evidence on Feedback Trading in Mature and Emerging Stock Markets," Research Paper Series 137, Quantitative Finance Research Centre, University of Technology, Sydney.
    10. Bernd Hayo & Ali M. Kutan, 2005. "The impact of news, oil prices, and global market developments on Russian financial markets," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 13(2), pages 373-393, April.
    11. Joseph Friedman & Yochanan Shachmurove, 2005. "European Stock Market Dynamics Before and After the Introduction of the Euro," PIER Working Paper Archive 05-028, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    12. Hassan, M. Kabir & Naka, Atsuyuki, 1996. "Short-run and long-run dynamic linkages among international stock markets," International Review of Economics & Finance, Elsevier, vol. 5(4), pages 387-405.
    13. Claudeci Da Silva & Hugo Agudelo Murillo & Joaquim Miguel Couto, 2014. "Early Warning Systems: Análise De Ummodelo Probit De Contágio De Crise Dos Estados Unidos Para O Brasil(2000-2010)," Anais do XL Encontro Nacional de Economia [Proceedings of the 40th Brazilian Economics Meeting] 110, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    14. Koulakiotis, Athanasios & Babalos, Vassilios & Papasyriopoulos, Nicholas, 2016. "Financial crisis, liquidity and dynamic linkages between large and small stocks: Evidence from the Athens Stock Exchange," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 40(C), pages 46-62.
    15. Bernd Hayo & Ali Kutan, 2002. "The Impact of News, Oil Prices, and International Spillovers on Russian Financial Markets," Finance 0209001, University Library of Munich, Germany.
    16. Phengpis, Chanwit & Apilado, Vince P., 2004. "Economic interdependence and common stochastic trends: A comparative analysis between EMU and non-EMU stock markets," International Review of Financial Analysis, Elsevier, vol. 13(3), pages 245-263.
    17. Cheung, Yan-Leung & Cheung, Yin-Wong & Ng, Chris C., 2007. "East Asian equity markets, financial crises, and the Japanese currency," Journal of the Japanese and International Economies, Elsevier, vol. 21(1), pages 138-152, March.
    18. McKenzie, Michael D. & Faff, Robert W., 2005. "Modeling conditional return autocorrelation," International Review of Financial Analysis, Elsevier, vol. 14(1), pages 23-42.
    19. Michael E. Drew & Leonard Chong, 2002. "Stock Market Interdependence: Evidence from Australia," School of Economics and Finance Discussion Papers and Working Papers Series 106, School of Economics and Finance, Queensland University of Technology.
    20. Haque Mahfuzul & Hassan M. Kabir & Maroney Neal C & Sackley William H, 2004. "An Empirical Examination of Stability, Predictability, and Volatility of Middle Eastern and African Emerging Stock Markets," Review of Middle East Economics and Finance, De Gruyter, vol. 2(1), pages 18-41, April.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:eurjfi:v:10:y:2004:i:2:p:139-148. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/REJF20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.