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Explaining movements in UK stock prices:

Author

Listed:
  • Nektarios Aslanidis

    (Department of Economics, University of Crete, Greece)

  • Denise Osborn

    (Centre for Growth and Business Cycle Research, University of Manchester, UK)

  • Marianne Sensier

    (Centre for Growth and Business Cycles Research, University of Manchester, UK)

Abstract

This paper provides evidence on the causes of movements in monthly UK stock prices, examining the role of macroeconomic and financial variables in a nonlinear framework. We allow for time-varying effects through the use of smooth transition models. We find that past changes in the dividend yield are an important transition variable, with current US stock market price changes providing a second nonlinear influence. This model explains the declines in the UK market since 2000, whereas a competing model excluding current US prices does not. The conclusion is that the principal explanation of recent declines in the UK lies in the nonlinear influence of declines in the US, and not the domestic economic environment.

Suggested Citation

  • Nektarios Aslanidis & Denise Osborn & Marianne Sensier, 2003. "Explaining movements in UK stock prices:," Working Papers 0302, University of Crete, Department of Economics.
    • Handle: RePEc:crt:wpaper:0302
    as

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    File URL: http://economics.soc.uoc.gr/wpa/docs/dpcgbcr27.pdf
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    References listed on IDEAS

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    3. Andreas Röthig, 2009. "Microeconomic Risk Management and Macroeconomic Stability," Lecture Notes in Economics and Mathematical Systems, Springer, number 978-3-642-01565-6, December.

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    More about this item

    Keywords

    Regime-switching models; smooth transition autoregressive models; linearity tests; model evaluation;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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