The Connection of Stock Markets Between Germany and the USA: New Evidence From a Co-integration Study

Elke Eberts

No 03-36, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: This paper uses an empirical connection between real stock market indices of Germany and the USA for forecasting corresponding returns. We are starting from the random walk as the traditional forecasting model in stock market applications, extending it by co-integration. Since the cointegrating relation considers information about a systematic link between the stock market indices, containing a common stochastic trend of both, differences from the random walk occur particularly in the long run. Thus, the estimation period shows that with increasing forecasting horizon predictability of simple real returns of the German stock market gets more accurate than reflected traditionally.

Keywords: Co-integration of international stock markets; random walk; discretely and continuously compounded returns; impulse responses (search for similar items in EconPapers)
JEL-codes: C52 C53 F36 G12 (search for similar items in EconPapers)
Date: 2003
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:1346

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