Structural VAR identification in asset markets using short-run market inefficiencies

Gultekin Isiklar ()

Econometrics from EconWPA

Abstract: We impose a structure on the short-run market inefficiencies in the asset markets and use this structure to identify a structural vector autoregressive model. This novel identification method is based on more reasonable assumptions than the standard approaches and also gives estimates for inefficiency measures in the markets, which are important on their own. Applying our method on the major European stock markets, we find that while the UK shocks were dominant in Europe until 1999, German innovations have been more important since 1999. We also find that the pattern of inefficiencies are consistent with the rational inattention model of Sims (2003).

Keywords: Structural VAR; Overreaction and Underreaction; Stock Market (search for similar items in EconPapers)
JEL-codes: C32 G15 D84 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn, nep-ecm, nep-eec, nep-ets, nep-fmk and nep-rmg
Date: 2005-01-01, Revised 2005-01-02
Note: Type of Document - pdf; pages: 25
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpem:0501001

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