Not Everyone is a Follower: The Behaviour of Interest Rate and Equity Markets within Major Economies relative to the US

Using a multi-factor continuous-time model we study the impact of the global financial crisis on the information transmission mechanism between interest rate and equity markets in the US and each of the four major economies (UK, Japan, Germany and Canada). The exchange of information through the return channel shows that the equity markets communicate differently with the short- and long-term interest markets: the linkages between the equity and moneymarkets follow similar patterns across all four major economies, while the feedbacks between the returns on equity and bond markets suggest country-specific relationships with the US The level of interdependence is higher between the equity and long-term bond markets, while within the money-markets context there is evidence of the flight-to-quality phenomenon.