Common stochastic trends and the dynamic linkages driving european stock markets: evidence from pre- and post-october 1987 crash eras |
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Authors: | Rumi Masih A. Mansur M. Masih |
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Affiliation: | 1. Global Economic Research , Goldman Sachs, New York, NY, 10004, USA masih@kfupm.edu.sa;3. Department of Finance and Economics , King Fahd University of Petroleum and Minerals , Dhahram, Saudi Arabia |
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Abstract: | Given the impact of the October 1987 crash pre-empting fears of a deep-seated financial collapse, there is now much scope for assessing its importance quantitatively. In this paper, time series techniques are used to analyse the dynamic linkages and propagation of shocks among five European stock markets. While we do not find any long-run relationship of stock markets over the entire sample ped, evidence is found in support of a unique cointegrating vector over each of the pre- and post-crash samples. Furthermore, the dynamic analysis reveals that the lead–lag relationships changed quite significantly over the sample following the crash. |
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Keywords: | Stock price index Pre/post crash Granger temporal causality Cointegration Vector error-correction model Variance decomposition Impulse response function |
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