The European Stock Market Impulse To The U.S. Financial Crisis

This study examines how the European stock market reacts to the US fundamentals including the Federal Fund Rate (FFR), the Euro-dollar exchange rate, and the US stock market indices. The results from Johansen and Juselius cointegration technique suggest that a long-term relationship exists between the European stock market, and the US fundamentals. The Granger causality test indicates that causality runs from the US to European stock market. Using a Vector Error Correction Model (VECM) the authors measure the long and short-term elasticity of the European Stock Market not only to European fundamentals, but to the US fundamentals, the parity of the Euro-dollar exchange rate, and the US stock market indices.