Canadian and U.S. Financial Markets: Testing the International Integration Hypothesis Under Time-Varying Conditional Volatility

Michel Normandin ()

No 03-08, Cahiers de recherche from HEC Montréal, Institut d'économie appliquée

Abstract: This paper gauges the international integration hypothesis, i.e. risk-adjusted anticipated returns are identical, even when financial instruments are traded in different countries. Under time-varying conditional volatility, this hypothesis can be tested by verifying the equality between domestic and foreign risk prices associated with a multi-factor analytic specification. The maximum-likelihood and Kalman-filter estimates are used to assess the national risk prices and interpret the factors. Empirically, the integration of Canadian and U.S. financial markets depends crucially on the risk prices of two factors, which seem intimately related to certain nonmonetary events and to the conduct of monetary policies.

Keywords: Conditional Heteroscedasticity; Kalman Filter; Maximum Likelihood; Monetary Policies; Prices of Risk; Unspecified Factors. (search for similar items in EconPapers)
JEL-codes: G12 G15 C32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn and nep-ets
Date: 2003-11
View list of references

Downloads: (external link)
http://www2.hec.ca/iea/cahiers/2003/iea0308_mn.pdf (application/pdf)

Related works:
Journal Article: Canadian and U.S. financial markets: testing the international integration hypothesis under time-varying conditional volatility (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:iea:carech:0308

Ordering information: This working paper can be ordered from
Institut d'économie appliquée HEC Montréal 3000, Chemin de la Côte-Sainte-Catherine Montréal, Québec H3T 2A7

The price is Free.

Access Statistics for this paper

More papers in Cahiers de recherche from HEC Montréal, Institut d'économie appliquée
Address: Institut d'économie appliquée HEC Montréal 3000, Chemin de la Côte-Sainte-Catherine Montréal, Québec H3T 2A7
Contact information at EDIRC.
Series data maintained by Patricia Power ().