Regime Change and the Role of International Markets on the Stock Returns of Small Open Economies

  1. Don Bredin1,
  2. Stuart Hyde2

Article first published online: 14 MAR 2007

DOI: 10.1111/j.1468-036X.2007.00361.x

Issue

European Financial Management

European Financial Management

Volume 14, Issue 2, pages 315–346, March 2008

Additional Information

How to Cite

Bredin, D. and Hyde, S. (2008), Regime Change and the Role of International Markets on the Stock Returns of Small Open Economies. European Financial Management, 14: 315–346. doi: 10.1111/j.1468-036X.2007.00361.x

Author Information

  1. 1

    Graduate School of Business, University College Dublin, Blackrock, Dublin, Ireland E-mail: don.bredin@ucd.ie.

  2. 2

    Manchester Business School, University of Manchester, MBS Crawford House, Booth Street East, Manchester, UK M13 9PL E-mail: stuart.hyde@mbs.ac.uk.

Publication History

  1. Issue published online: 14 MAR 2007
  2. Article first published online: 14 MAR 2007

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Keywords:

  • smooth transition;
  • regime switching
  • G15;
  • F30;
  • F37;
  • C32

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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