Canadian and U.S. Financial Markets: Testing the International Integration Hypothesis Under Time-Varying Conditional Volatility

Michel Normandin ()

No 03-08, Cahiers de recherche from HEC Montréal, Institut d'économie appliquée

Abstract: This paper gauges the international integration hypothesis, i.e. risk-adjusted anticipated returns are identical, even when financial instruments are traded in different countries. Under time-varying conditional volatility, this hypothesis can be tested by verifying the equality between domestic and foreign risk prices associated with a multi-factor analytic specification. The maximum-likelihood and Kalman-filter estimates are used to assess the national risk prices and interpret the factors. Empirically, the integration of Canadian and U.S. financial markets depends crucially on the risk prices of two factors, which seem intimately related to certain nonmonetary events and to the conduct of monetary policies.

Keywords: Conditional Heteroscedasticity; Kalman Filter; Maximum Likelihood; Monetary Policies; Prices of Risk; Unspecified Factors. (search for similar items in EconPapers)
JEL-codes: C32 G12 G15 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2003-11
New Economics Papers: this item is included in nep-cfn and nep-ets
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: Canadian and U.S. financial markets: testing the international integration hypothesis under time-varying conditional volatility (2004)
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