Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5090536 | Journal of Banking & Finance | 2009 | 10 Pages |
Abstract
This paper examines the relationship between UK equity returns and short-term interest rates using a two regime Markov-Switching EGARCH model. The results suggest one high-return, low variance regime within which the conditional variance of equity returns responds persistently but symmetrically to equity return innovations. In the other, low-mean, high variance, regime equity volatility responds asymmetrically and without persistence to shocks to equity returns. There is evidence of a regime dependent relationship between shorter maturity interest rate differentials and equity return volatility. Furthermore, there is evidence that events in the money markets influence the probability of transition across regimes.
Related Topics
Social Sciences and Humanities
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Authors
Ãlan T. Henry,