Moving Standard Deviations of Nominal Returns on the Swedish Stock Market

Is the increased volatility on the Swedish stock market due to increased sensitivity to foreign markets or to inherently Swedish factors? The findings in this paper is that the foreign influence on the Swedish stock market shows a clear positive trend while purely domestic factors have not become more volatile. World influence on domestic stock markets is also substantially larger during international high volatility periods than during calmer periods on the world market. Furthermore, when the volatility of the world stock market shifts to its higher level, both the world and the domestic markets simultaneously fall quite dramatically. ∗I thank Magnus Dahlquist, Lars E.O. Svensson and Anders Warne for valuable comments. I am grateful to Karin Russel and the Morgan Stanley Capital International for providing data. Institute for International Economic Studies, Stockholm University, S-106 91 Stockholm, Sweden. Telephone:+46-8-162070, Fax: +46-8-161443, Email: [email protected], WWW: http:/WWW.IIES.SU.SE/