In the Shadow of the United States : The International Transmission Effect of Asset Returns

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalNot applicablepeer-review

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Original languageEnglish
Pages (from-to)1-40
Journal / PublicationPacific Economic Review
Volume18
Issue number1
Publication statusPublished - Feb 2013

Abstract

We examine how fluctuations in financial and housing markets in the United States affect asset returns and GDP in Hong Kong. In contrast to studies using linear specifications, which find that the United States and Hong Kong are virtually delinked in terms of the asset markets, our regime-switching models indicate that an unexpected change in US stock returns, followed by the TED spread, has the most significant effect on Hong Kong asset returns and GDP, typically in a regime of high return and low volatility. For in-sample one-step-ahead forecasting, the US term spread is the best predictor. © 2013 Wiley Publishing Asia Pty Ltd.