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Student
Title
Supervisor
Faculty
Educational Programme
Final Grade
Year of Graduation
Kseniia Lapshina
Risks and Returns on US-EU Money Markets: Preliminary Results and Future Perspectives
Finance
(Master’s programme)
2019
The research is aimed at the multilateral analysis of the US and the EU money markets interdependence from 2004 to 2018. Such the analysis is intended to explain to what extent the dynamics of returns and volatility of the chosen money markets instruments in two regions is intercorrelated before, during and after the financial crisis of 2008. The paper contributes to the empirical literature on financial markets by considering the links between national money markets. The research question concerning the correlation between US and EU government bond yields and interbank rates in different time periods is addressed with the statistic and correlation analysis. Then we apply the econometric analysis and estimate time-series models of class GARCH to scrutinize the historical dynamics of rates and bond returns and periods of extremely high volatility. The analysis demonstrates that correlation between returns of analogous money market instruments in the EU and US is not stable over time. We found that correlation rises in periods when countries are exposed to the same external shocks as global financial crisis. In other years low or even negative correlation is explained by diverge monetary cycles, macroeconomic fundamentals, the level of economic activity and the investors’ attitude toward risk assets. The analysis shows that during the last five years returns on short-term instrument have not become more interdependent, while most of the literature claims that they are, because of globalisation processes. Additional evidence suggests that the United States as the biggest world economy influences the other regional and national markets, and not vice versa.

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