Trends of financial markets in USA

Ing. Samir Salimov

Master's thesis

Abstract:

This thesis aims to analyze the trends within the financial markets of the U.S. with respect to financial tools. The stock market, bond market and the foreign exchange market was analyzed within this study by using numerous econometric models of the ARCH family and VAR. The results suggested that the stock market is expected to increase within the next 3 months, the treasury bond yields are expected to decrease suggesting that interest rates are likely to decrease to stabilize the economy. This assumption has been tested by using the VAR model and established a granger causality between the interest rate and bond yields, along with the impulse response function confirming the assumption. The bond yield curve suggests that the interest rates are on the decrease that further solidify the findings of this paper. Furthermore, the relationship between the interest rates, U.S. treasury bond yield and the stock market is covered to reveal that VIX index and the interest rates have a negative relationship with the stock market indices. However, the econometric models did not detect any seasonalities within the foreign exchange market suggesting a bad fit for the data, and thus other methods of forecasting was used which suggest that the exchange rate between the Japanese yen and the dollar is expected to increase, yet the exchange rate between the dollar and Canadian dollar with Euro is expected to remain relatively stable within the next 3 months.

Abstract:

This thesis aims to analyze the trends within the financial markets of the U.S. with respect to financial tools. The stock market, bond market and the foreign exchange market was analyzed within this study by using numerous econometric models of the ARCH family and VAR. The results suggested that the stock market is expected to increase within the next 3 months, the treasury bond yields are expected to decrease suggesting that interest rates are likely to decrease to stabilize the economy. This assumption has been tested by using the VAR model and established a granger causality between the interest rate and bond yields, along with the impulse response function confirming the assumption. The bond yield curve suggests that the interest rates are on the decrease that further solidify the findings of this paper. Furthermore, the relationship between the interest rates, U.S. treasury bond yield and the stock market is covered to reveal that VIX index and the interest rates have a negative relationship with the stock market indices. However, the econometric models did not detect any seasonalities within the foreign exchange market suggesting a bad fit for the data, and thus other methods of forecasting was used which suggest that the exchange rate between the Japanese yen and the dollar is expected to increase, yet the exchange rate between the dollar and Canadian dollar with Euro is expected to remain relatively stable within the next 3 months.

Keywords

ARCH, Econometric, Financial, GARCH, Market, Models, U.S.A, Volatility

Language used: English

Date on which the thesis was submitted / produced: 1. 7. 2021

Thesis defence

• Date of defence: 2. 2. 2022
• Supervisor: Ing. Luděk Benada, Ph.D.
• Reader: doc. Ing. Martin Svoboda, Ph.D.

Masaryk University

Faculty of Economics and Administration

Master programme / field:
Finance / Finance