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Stock market's response to real output shocks in Eastern European frontier markets: A VARwAL model

Numan Ülkü, Duminda Kuruppuarachchi and Olga Kuzmicheva

Emerging Markets Review, 2017, vol. 33, issue C, 140-154

Abstract: 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: C58 E44 G14 P34 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1016/j.ememar.2017.09.004

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