Essays on international financial markets interdependence

Mohammed, WA

Abstract

This thesis consists of five chapters. Chapter one showcases the analysis of the three empirical studies presented in this thesis. Chapter two provides broad literature review. Chapter three investigates the transmission of information between developed and developing countries. In particular, foreign exchange market’s return and volatility spillovers channel. A fundamental question is whether the magnitude of return and volatility spillovers is bidirectional between developed and developing countries. In this chapter, I investigate the “static and dynamic” return and volatility spillovers transmission across developed and developing countries. Quoted against the U.S. dollar, I study twenty-three global currencies over 2005 – 2016. Focusing on the spillover index methodology, the generalised VAR framework is employed. The findings indicate no evidence of bidirectional return and volatility spillovers between developed and developing countries. However, a unidirectional volatility spillover from developed to developing countries is highlighted. Furthermore, the findings also document significant bidirectional volatility spillover within the European region (Eurozone and non-Eurozone currencies) with the British Pound (GBP) and the Euro (EUR) as the most significant transmitters of volatility. The findings reiterate the prominence of volatility spillover to financial regulators.

Chapter four contributes to the out-of-sample’s stock returns forecasting problem and investigates both its econometric underpinnings and predictability. According to Welch and Goyal (2008) there is little or zero evidence of the effectiveness of both (in-sample and out-of-sample) models in predicting equity returns. Thus, using daily data, this chapter examines whether the U.S. S&P stock exchange follow a random walk process, which required by market efficiency. We use a model-comparison approach, which compares an ex-post forecasts from a naïve model against those obtained from numerous alternative models such as ARIMA models, random walk without drift and Simple exponential smoothing.
Chapter five assesses the dynamic behaviour of credit and house prices in advanced modern economies over the last three decades. The analysis is based on the GMM panel VAR, and Fixed-effects estimated using annual data for the G7 countries over the period 1980-2017. Thus, the empirical analysis of this chapter attempts to offer some contribution to the contemporaneous issues affecting the macroeconomic performance by investigating the dynamic behaviour of credit, house prices, GDP, consumption, and loans to the private sector. The main finding here is the strong link between the dynamic behaviour of the aforementioned variables in advanced modern economies. Finally, chapter six concludes and discusses the research implications and future study.

Citation

Mohammed, W. Essays on international financial markets interdependence. (Thesis). University of Salford

• Thesis Type: Thesis
• Deposit Date: Apr 21, 2021
• Publicly Available Date: Apr 21, 2021
• Award Date: Jan 1, 2020