Regime Change and the Role of International Markets on the Stock Returns of Small Open Economies |
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Authors: | Don Bredin Stuart Hyde |
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Institution: | 1. Graduate School of Business, University College Dublin, Blackrock, Dublin, Ireland E‐mail: don.bredin@ucd.ie.;2. Manchester Business School, University of Manchester, MBS Crawford House, Booth Street East, Manchester, UK M13 9PL E‐mail: stuart.hyde@mbs.ac.uk. |
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Abstract: | We examine the influence of US, UK and German macroeconomic and financial variables on the stock returns of two relatively small, open European economies, Ireland and Denmark. Within a nonlinear framework, we allow for time variation via regime switching using a smooth transition regression (STR) model. We find that US (global) and UK and German (regional) stock returns are significant determinants of returns in both markets. Further, global information represented by oil and US asset price movements drive changes between states in each market. Significantly, the role of country‐specific domestic variables is typically confined to a single state while global and regional variables pervade all states. |
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Keywords: | smooth transition regime switching G15 F30 F37 C32 |
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