Relationships between the US and European stock markets during the recent financial turmoil: evidence from the VARFIMA model

Abstract

This article examines the impacts of the US stock market on some selected European stock markets with different development levels. We employ the Vector Fractionally Integrated Autoregressive Moving Average (VARFIMA) model to examine the linkages between these stock markets and impulse response test to evaluate the persistence of shocks by using daily data from 2005 to 2012 including the recent financial turmoil. We do not observe any diversification benefit by investing in European stock markets, regardless of their development level, for the global investors.

Keywords:

• European stock markets
• VARFIMA
• impulse response

JEL Classification:

• G10
• G15
• C22