Regime-dependent relationships among the stock markets of the US, Australia and New Zealand: A Markov-switching VAR approach

Zhuo Qiao*, Yuming Li, Wing Keung WONG

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

19 Citations (Scopus)

Abstract

Adopting a multivariate Markov-switching-VAR model (Krolzig, 1997) and a recently developed regime-dependent impulse response analysis technique (Ehrmann et al., 2003), this article investigates the dynamic relationships among the stock markets of the US, Australia and New Zealand. Our results reveal the existence of two different regimes in the three stock markets. We find that the correlations among the three markets are significantly higher in a bear regime than in a bull regime. In addition, the responses of each of the three markets to shocks in the other two markets are stronger and more persistent in the bear regime than in the bull regime. Finally, our findings imply that for the New Zealand stock market, the Australian stock market is more influential than the US stock market, and for the Australian stock market, the US stock market is more influential than the New Zealand stock market.

Original languageEnglish
Pages (from-to)1831-1841
Number of pages11
JournalApplied Financial Economics
Volume21
Issue number24
DOIs
Publication statusPublished - Dec 2011

Scopus Subject Areas

  • Finance
  • Economics and Econometrics

User-Defined Keywords

  • Dynamic relationships
  • Hansen test
  • Markov switching VAR
  • Regime-dependent impulse response
  • Stock markets

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