Stock market's response to real output shocks in Eastern European frontier markets: A VARwAL model
Duminda Kuruppuarachchi and
Emerging Markets Review, 2017, vol. 33, issue C, 140-154
We study stock market's response to real output shocks in the small and young Eastern European frontier markets, and compare to the larger European emerging- and world's most developed markets. To obtain a complete time profile of stock market's response, we use a Vector Auto-regression with Asymmetric Leads (VARwAL) model, which is a special case of the mix (noncausal) VARs. Results confirm its efficacy: in every country, both the forward-looking and delayed components of stock market's response are significant. Stock market returns forecast future real output equally well in Eastern European frontier markets as in developed and larger-emerging markets. The distant-horizon forward-looking response is larger in frontier markets, whereas the near-horizon forward-looking response is larger in developed markets.
Keywords: Stock market – real output interaction; Eastern European frontier markets; VARwAL model (search for similar items in EconPapers)
JEL-codes: E44 P34 G14 C58 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ememar:v:33:y:2017:i:c:p:140-154
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