Do the US trends drive the UK-French market linkages?: empirical evidence from a threshold intraday analysis

Fredj Jawadi, Waël Louhichi () and Hachmi Ben Ameur
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Waël Louhichi: CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique

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Abstract: This article investigates the impact of US stock market openings on linkages between the UK and French markets. Using intraday data over the period December 2004 to March 2009, we find significant time-varying dependence between the UK and French stock returns, which alter according to the state of the US market. Indeed, not only does the opening of the US market itself significantly affect the UK stock dependency, but such linkages also seem to be closely dependent on bearish or bullish US market trends. Interestingly, the estimation of a two-regime Threshold Autoregressive (TAR) model indicates that the bearish US trends are a source of minor linkage (lower regime), whereas the bullish US trends involve higher interdependency (upper regime). This finding is particularly interesting as following the US trend expectations enables us to better forecast future European stock prices and to calculate the level of their potential contagion effects.

Keywords: US stock market news; Contagion; Dependency; TAR; Structural breaks (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (1)

Published in Applied Economics Letters, 2013, 20 (5), pp.499-503. ⟨10.1080/13504851.2012.714064⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00875569

DOI: 10.1080/13504851.2012.714064

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