Macroeconomic determinants of European stock and bond correlations: A tale of two regions.

in Journal of Empirical Finance (2016)

This paper presents an analysis of Euro-zone financial markets based on a joint assessment of bonds, stocks and stock–bond correlations between groups of Euro-zone countries. The quarterly component of ... [more ▼]

This paper presents an analysis of Euro-zone financial markets based on a joint assessment of bonds, stocks and stock–bond correlations between groups of Euro-zone countries. The quarterly component of dynamic correlations indicates the divergence of integration in Europe and highlights the heterogeneity in these markets. Panel regressions on these dynamic correlations, controlling for unobserved heterogeneity, offer new insights into the role of macro-economic determinants of financial markets between assets and regions. This combined analysis of markets provides evidence on the importance of macro-economic factors such as inflation, uncertainty, debt, current account and economic growth in European financial integration. These factors may be overlooked when analysing a single market for individual pairs of countries. As a result we find that the robust role of economic fundamentals in European financial market correlations points to the need for European economic integration based on sound macro-economic fundamentals for both current and future Euro-zone members. [less ▲]

Macroeconomic determinants of European stock and government bond correlations: A tale of two regions

E-print/Working paper (2013)

This paper studies the dynamic correlation between stocks, between government bonds and between stocks and bonds within the Euro-zone in the last decade. In order to better understand the development of ... [more ▼]

This paper studies the dynamic correlation between stocks, between government bonds and between stocks and bonds within the Euro-zone in the last decade. In order to better understand the development of the financial market we argue that it is necessary to analyse all such relations simultaneously rather than focus at one. We firstly calculate the dynamic correlation for the previous asset classes. Results presented at the asset-region level, i.e. north-stock, north-bonds, south-stocks and south-bonds, visualise the divergence in integration in Europe and highlight the he- terogeneity in these markets. Secondly, we study the macroeconomic factors that determine these correlations. We find that, when we allow for regional division, not only cross-asset correlations within regions behave differently from each other, but also cross-assets cross-regions dynamic correlations can be explained with ma- croeconomic factors such as the relative market uncertainty between countries and balance of payments dynamics. [less ▲]

Resource Income and the Effect on Domestic Neighbours: A case study on Canadian

E-print/Working paper (2013)

Resource income in a multi-regional setting allows for differentiated impacts of windfalls on the industrial development of each region. A resource exporting region suffers from Dutch disease through a ... [more ▼]

Resource income in a multi-regional setting allows for differentiated impacts of windfalls on the industrial development of each region. A resource exporting region suffers from Dutch disease through a spending effect and a real exchange rate ap- preciation. Whereas, a neighboring region will suffer from the real exchange rate appreciation but the increased demand from the region with the resource income of tradable goods will increase the traded good sector in the neighboring region. For a 2-region 2-sector model the equilibrium conditions on the labour allocation between the sectors are derived taking into account resource potential windfalls. The model is tested on and supported by a panel dataset of Canadian provinces. [less ▲]