Econometrics seminar: Measuring Financial Interdependence in Asset Markets with an Application to Eurozone Equities
The School of Economics invites you to an Econometrics seminar by Vance Martin (University of Melbourne).
An aggregate measure of interdependence based on entropy theory is developed with an application to eurozone and U.S. equity returns from 1990 to 2017. The measure combines various channels linking asset markets, including correlation and the higher order comoments of coskewness, cokurtosis and covolatility.
This measure can also be used to determine the relative contributions of these separate channels linking asset markets. As a natural extension of this framework an omnibus test of interdependence is proposed and applied in the paper. The empirical results provide strong evidence that eurozone and U.S. equity markets became increasingly more interdependent, peaking during the global financial crisis before softening thereafter. Whilst, interdependence increases through the traditional correlation measure, there is nonetheless strong evidence that volatilities across equity markets became more interconnected during this period.