Authors: José Soares Da Fonseca
Addresses: Faculty of Economics, University of Coimbra, Av. Dias da Silva 165, Coimbra 3004-512, Portugal
Abstract: This paper compares the performance of 11 euro area stock markets through the estimation of market models with betas dependent on the stock indexes levels and a certain number of their past changes. Time-varying Treynor ratios are then calculated and a vector autoregressive model (VAR) of the Treynor ratios is used to estimate the performance causality between this group of markets. The VAR model estimations provide evidence that there is reciprocal performance influence between the majority of these stock markets. Finally, the Treynor ratios dependence on a group of macroeconomic variables (real gross domestic product (GDP) growth rate, inflation rate, long-term public debt interest rates and public budget deficit ratio) was estimated by panel data regression methods. According to the evidence provided by these estimations, the long-term interest rate is the macroeconomic variable that most clearly affects the performance differences between these domestic stock markets.
Keywords: ARDL; autoregressive distributed lag; Euro area; Eurozone; time-varying betas; Treynor ratios; stock markets; stock market performance; performance comparison; macroeconomic variables; real GDP; gross domestic product; growth rate; inflation rate; long-term interest rates; public debt interest rates; public budget deficit ratio.
International Journal of Monetary Economics and Finance, 2016 Vol.9 No.3, pp.245 - 266
Received: 19 May 2015
Accepted: 14 Jul 2015
Published online: 04 Aug 2016 *