Anaraki, Nahid Kalbasi2019-09-252019-09-252011-03-012010-051941-5087http://hdl.handle.net/20.500.12424/176558This study examines how the European stock market reacts to the US fundamentals including the Federal Fund Rate (FFR), the Euro-dollar exchange rate, and the US stock market indices. The results from Johansen and Juselius cointegration technique suggest that a long-term relationship exists between the European stock market, and the US fundamentals. The Granger causality test indicates that causality runs from the US to European stock market. Using a ector Error Correction Model (VECM) we measure the long and short-term elasticity of the European Stock Market not only to European fundamentals, but to the US fundamentals, the parity of the Euro-dollar exchange rate, and the US stock market indices. Results from variance decomposition technique indicate that the US business cycles play a dominant role in explaining the European stock market volatility, compared with EU fundamentals.engWith permission of the license/copyright holderfinance ethicssocial market economyPolitical ethicsEconomic ethicsDevelopment ethicsBusiness ethicsEthics of economic systemsTechnology ethicsTrade ethicsArticle