Authors: Rajeev Sooreea; Mark Wheeler
Addresses: School of Business and Leadership, Dominican University of California 50 Acacia Ave, San Rafael, CA 94901, USA. ' Department of Economics, Western Michigan University, Kalamazoo, MI 49008, USA
Abstract: This paper examines the response of Stock Prices (SPs) in Germany, Italy, and the UK to shocks to US Stock Prices (USSPs) using Vector Error Correction Models (VECMs) and cross-country stock return correlations. Our results yield clear implications. Positive shocks to USSPs lead to significant, positive, responses in European SPs. Shocks to US stock prices also explain over 43% of the forecast error variance in European SPs. Shocks to domestic variables never cause significant responses in European SPs. These results indicate strong interdependence between the US stock market and stock markets in the UK, Germany and Italy.
Keywords: stock market crash; interdependence; comovement; financial crisis; stock markets; stock prices; Germany; Italy; UK; United Kingdom; USA; United States.
International Journal of Monetary Economics and Finance, 2011 Vol.4 No.4, pp.372 - 389
Available online: 27 Oct 2011 *Full-text access for editors Access for subscribers Purchase this article Comment on this article