Smooth Transition Regression Models in UK Stock Returns

Nektarios Aslanidis, Denise Osborn and Marianne Sensier ()
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Nektarios Aslanidis: University of Manchester

No 11, Royal Economic Society Annual Conference 2002 from Royal Economic Society

Abstract: This paper models UK stock market returns in a smooth transition regression (STR) framework. We employ a variety of financial and macroeconomic series that are assumed to influence UK stock returns, namely GDP, interest rates, inflation, money supply and US stock prices. We estimate STR models where the linearity hypothesis is strongly rejected for at least one transition variable. These non-linear models describe the in-sample movements of the stock returns series better than the corresponding linear model. Moreover, the US stock market appears to play an important role in determining the UK stock market returns regime.

Date: 2002-08-29
New Economics Papers: this item is included in nep-ets, nep-fin and nep-fmk
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