Seminar Papers, Institute for International Economic Studies, Stockholm University
Regime Shifts and Volatility Spillovers on International Stock Markets
Abstract: A standard capital asset pricing model is extended to
allow for stochastic shifts in the volatility of the news process. This
model is then estimated on bivariate stock market data to separate two
exogenous news processes – a world and a domestic. The results indicate
that the influence of the world news process on the Swedish stock market
has increased significantly over the period 1970-1995. I also find that the
foreign influence is much stronger when the volatility of the world news
process is high. Furthermore, when the world state shifts to high risk, the
Swedish stock market immediately reacts by a large fall, estimated to 7.0%.
The bivariate model is also estimated on a set of other national stock
Keywords: capital asset pricing model; stochastic shifts; news process; Swedish stock market; (follow links to similar papers)
JEL-Codes: G12; G15; (follow links to similar papers)
20 pages, October 30, 1997
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