Download Proceedings of 29th International Business Research Conference

Proceedings of 29th International Business Research Conference
24 - 25 November 2014, Novotel Hotel Sydney Central, Sydney, Australia, ISBN: 978-1-922069-64-1
The 2011 US Debt Ceiling Debacle – Multivariate GARCH-in-Mean Analysis
Bruce Q. Budd1 and Declan McCrohan2
Using GARCH-in-Mean model, data from the ten largest holders of US Treasuries at the time
of the debt ceiling negotiations of 2011 are analyzed to measure the impact of the signal being
sent from the US market to foreign capital markets. Results suggest the impact of the signal
being sent from the US market to most of these countries is statistically significant and
negative on the stock returns, showing particular severity for Taiwan and UK markets. Results
further suggest that the time varying trend in the variance and volatility increase during the
debt ceiling period are statistically significant for most countries. Each country’s US debt
proportion to GDP ratio of their financial dependence with US market, as measured by the
average correlation, revealed a low coefficient during the debt ceiling period. This indicated
there was no evidence to show that the more integrated a country’s market performance is
with the US market the greater the spillover effect.
JEL Codes: F34, G10
1
2
Dr. Bruce Q. Budd, College of Business, Alfaisal University, Riyadh, Kingdom of Saudi Arabia. [email protected]
Dr. Declan McCrohan, College of Business, Alfaisal University, Riyadh, Kingdom of Saudi Arabia.