Asymmetric effects of U.S. stock returns on European equities

Mahmoud Wahab

International Review of Economics & Finance, 2012, vol. 21, issue 1, 156-172

Abstract: An asymmetric conditional mean returns model describing co-movements of three major European stock markets with the U.S. stock market is estimated. Multivariate conditional heteroskedasticity is captured by a VAR(p)-MGARCH(p,q)-BEKK parameterization. Conditional Sharpe ratios from alternative mean-volatility specifications are compared with multivariate t-tests. Results consistently indicate that France has offered the best risk-adjusted returns compared to the U.K. or Germany taken from a U.S. investor's viewpoint. All three European markets show a tendency to move counter-cyclically with the U.S. market, on average, suggesting ongoing substitution by global investors between U.S. and major European equities. Unconditional Sharpe ratios understate conditional Sharpe ratios for each market.

Keywords: Asymmetry; multivariate; MGARCH; conditional (search for similar items in EconPapers)
JEL-codes: G15 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:21:y:2012:i:1:p:156-172

DOI: 10.1016/j.iref.2011.05.007

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