Dynamic Linkages between the European and US Stock Markets

This paper aims to investigate the dynamic linkages between the European and US stock markets. We firstly examine the volatility spillover effects between the European and US stock markets using multivariate GARCH-BEKK model. The results suggest that volatility spillover effects widely exist in the international equity market. The UK market is the main volatility transmitter within the European stock market while the US is the main exporter worldwide. Secondly, we test the presence of time-varying correlation and tail dependence between return series using Copula-GARCH approach. The results show that correlations between the selected stock indices are not just non-linear but also significantly time-varying. In addition, this analysis also indicates asymmetric time-varying tail dependence between European and US stock market (Jan, 2004-Oct, 2009).