This essay studies the relationship between European stock market share and global market share over the period between 1 March 2007 to 1 July 2013. It is evident that stock returns and variations in sentiments are positively concurrent for European and Global countries, with Germany as the main exception. Moreover, share market returns because consumer confidence in most countries at very short horizons, like two weeks to one month. The share market confidence relationship in most countries is driven by expectations about economy- wide conditions rather than a country’s finances. This shows that the confidence share market channel is not part of the conventional wealth effect, rather than a separate transmission channel. Over the last years, the functions of the share market has considerably increased in many industrialized nations right from the European countries to the Global nations. Market capitalizations, expressed as a percentage of GDP, have doubled or tripled for European countries between 1 March 2007 to 1 July 2013. This development has led to research into the correlation between the EURO share market and the Global share market. Predictive power in itself does not entail an informal relationship running from the EURO share market to the Global share market. This is because; the EURO share market may just play as a leading indicator, or as an information dispensation black box. It is well-known in the economics literature share market prices fluctuations are connected with the engagements of macroeconomic variables. For example, Levine, (1998), demonstrate that both EURO and Global share market returns are correlated to various macro-economic variables like; industrial production and financial variables. Gummesson, Evert (2002) find a major long-run connection between share market prices and international and domestic economic activity in most European economies. Sangdal Shim (2004) finds that Switzerland share market price is strongly related with shocks to German macro-economic basics. In conclusion, the results obtained between the period given suggest that contagion from the other Global economies to EU share market has counterbalanced the European domestic financial plan to a great degree, making their monetary stability highly reliant on the Global economy, particularly the US business cycles.
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Gummesson, Evert. ” Relationship marketing in the new economy.” Journal of Relationship Marketing 1. 1 (2002): 37-57.
Levine, ” Stock markets, banks, and economic growth.” American economic review (1998): 537-558.
Sangdal Shim. ” International transmission of stock market movements.” Journal of financial and quantitative Analysis 24. 02 (2004): 241-256.