The US Financial Market Uncertainty and Its Spillover to European Stock Markets

This thesis studies the spillover of the financial market uncertainty arising from the United States to three major European stock markets by analyzing the impulse response functions that were estimated using the local projections method. European stock markets are represented by their corresponding in- dices: the DAX 30 index for Germany, the CAC 40 for France, and the FTSE 100 for the United Kingdom. The results prove the existence of uncertainty spillover from the United States into Europe with the negative relationship be- tween the performance of a particular stock market and the uncertainty shock emerging from the US. Additional analysis examines the response to uncer- tainty shock for the two subsamples based on the Lehman Brothers collapse. The results show a possible interesting improvement in the ability to recover from uncertainty shock since the collapse of Lehman Brothers and can serve as a starting point for the further analyses in the field. JEL Classification F12, F21, F23, H25, H71, H87 Keywords Uncertainty, financial market, stock market, United States, Europe Title The US Financial Market Uncertainty and Its Spillover to European Stock Market