Equity prices and financial globalization |
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| Institution: | 1. Center for Excellence in Finance and Economic Research (CEFER), Bank of Lithuania, Totoriu g. 4, Vilnius 01121, Lithuania;2. Faculty of Economics, Vilnius University, Sauletekio al. 9, II Building, Vilnius 10222, Lithuania;1. UCD Smurfit Graduate School of Business, University College Dublin, Carysfort Avenue, Blackrock, Co. Dublin, Ireland;2. New York University Stern School of Business, 44 West 4th Street, New York, NY 10012-1126, USA;3. Department of Management, University of Bologna, Bologna, Italy;4. Dipartimento di Scienze dell''Economia, Università del Salento, Italy;5. Cattolica University S.C., Piacenza, Italy;6. Rimini Centre for Economic Analysis (RCEA), Rimini, Italy |
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| Abstract: | This paper examines the association between equity returns, economic shocks, and economic integration. The empirical findings show that oil prices and U.S. Federal Reserve funds rates are associated with negative responses of international equity returns, of which a simple asset-pricing model is capable of explaining the international differences. Using vector autoregressions, we find that the effects of global economic shocks operate through the current excess returns of equity prices. Empirically, trade integration increases the responses of international equity returns to oil prices, while finance integration increases the responses of equity returns to Federal Reserve funds rates across countries. |
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