Developments In Time Series Econometrics Research Articles

A pulse check on recent developments in time series econometrics

AbstractThis article motivates and summarizes the contributions of the special issues on Recent Developments in Time Series Econometrics.

Testing weak form informational efficiency on the Tunisian stock market using long memory models

The purpose of this paper is to test the weak-form market efficiency of the Tunisian stock market using recent developments in time series econometrics. The efficiency hypothesis was tested by using the class of long memory models namely ARFIMA-FIGARCH. For this, we will attempt to examine the long memory behavior in the returns and the volatility series of the Tunisian stock market index namely Tunindex. Our empirical study covers a sample covering the Tunindex during the period: 02/01/1998 to 16/03/2018. Our results show the presence of the long memory property in the return and volatility specified respectively by an ARFIMA and FIGARCH process. This result implies that it is possible to predict future stock prices and an extraordinary gain could be obtained when trading in this market, which displays that the Tunisian stock market is not efficient in its weak-form.

Merchant Bank Acceptances and the British Economy, 1880-1913

This paper examines the role of an important type of instrument in international trade financing - the merchant bank acceptance - in the pre-WW1 British economy. A new dataset on merchant bank acceptances from 1880 to 1913 is analysed through the lens of recent developments in time series econometrics. The results indicate that the growth of merchant banks acceptances had a significant positive impact not only on British trade, but also on the domestic economy. The British economy thus benefited from having London as a hub for global trade financing.

The dynamics of return co-movements and volatility spillover effects in Greater China public property markets and international linkages

Purpose– The purpose of this paper is to examine weekly dynamic conditional correlations (DCC) and vector autoregressive (VAR)-based volatility spillover effects within the three Greater China (GC) public property markets, as well as across the GC property markets, three Asian emerging markets and two developed markets of the USA and Japan over the period from January 1999 through December 2013.Design/methodology/approach– First, the author employ the DCC methodology proposed by Engle (2002) to examine the time-varying nature in return co-movements among the public property markets. Second, the author appeal to the generalized VAR methodology, variance decomposition and the generalized spillover index of Diebold and Yilmaz (2012) to investigate the volatility spillover effects across the real estate markets. Finally, the spillover framework is able to combine with recent developments in time series econometrics to provide a comprehensive analysis of the dynamic volatility co-movements regionally and globally. The author also examine whether there are volatility spillover regimes, as well as explore the relationship between the volatility spillover cycles and the correlation spillover cycles.Findings– Results indicate moderate return co-movements and volatility spillover effects within and across the GC region. Cross-market volatility spillovers are bidirectional with the highest spillovers occur during the global financial crisis (GFC) period. Comparatively, the Chinese public property market's volatility is more exogenous and less influenced by other markets. The volatility spillover effects are subject to regime switching with two structural breaks detected for the five sub-groups of markets examined. There is evidence of significant dependence between the volatility spillover cycles across stock and public real estate, due to the presence of unobserved common shocks.Research limitations/implications– Because international investors incorporate into their portfolio allocation not only the long-term price relationship but also the short-term market volatility interaction and return correlation structure, the results of this study can shed more light on the extent to which investors can benefit from regional and international diversification in the long run and short-term within and across the GC securitized property sector, with Asian emerging market and global developed markets of Japan and USA. Although it is beyond the scope of this paper, it would be interesting to examine how the two co-movement measures (volatility spillovers and correlation spillovers) can be combined in optimal covariance forecasting in global investing that includes stock and public real estate markets.Originality/value– This is one of very few papers that comprehensively analyze the dynamic return correlations and conditional volatility spillover effects among the three GC public property markets, as well as with their selected emerging and developed partners over the last decade and during the GFC period, which is the main contribution of the study. The specific contribution is to characterize and measure cross-public real estate market volatility transmission in asset pricing through estimates of several conditional “volatility spillover” indices. In this case, a volatility spillover index is defined as share of total return variability in one public real estate market attributable to volatility surprises in another public real estate market.

Is there an Arms Race between Greece and Turkey?

Richardson's action-reaction model of an arms race has prompted a considerable body of research that has attempted to empirically estimate such models. In general these attempts have been unsuccessful. This paper provides an extensive reconsideration of the estimation issues and using some recent developments in time-series econometrics, provides a comprehensive analysis of data for Greece and Turkey. It finds evidence of some form of cointegration between the military expenditures in both countries, but not of Richardson arms race type.

Wagner's hypothesis: evidence from Kuwait using cointegration tests

This paper investigates the relationship between public expenditure and a number of socioeconomic variables, including the level of income, in Kuwait. A general form of the public expenditure function is formulated and recent developments in time series econometrics, including unit roots and cointegration tests, and an error-correction model are used. Given the characteristics of the economy, alternative measures for each variables are used. The analysis in the paper is based on time-series data covering the period from 1969/70 to 1994/95. In general, the findings lend little support to the existence of long-run equilibrium relationship between public expenditure and the socioeconomic variables, and the evidence does not lend support to the validity of Wagner's law in Kuwait.

Applying Recent Developments in Time Series Econometrics to the Spatial Domain

This paper surveys some recent developments in time series econometrics and examines to what degree they might have useful analogs in spatial econometrics. Spatial analogs of stationary vector autoregression models might be useful in modeling groups of spatial series, but the literature on non-stationarity and cointegration does not have a useful purely spatial analog. With the exception of some special cases, pure spatial series cannot be integrated processes. However, cointegration might apply to space-time processes. Space-time cointegration and Granger causality methods are developed and applied to explaining reductions in sulfur emissions in Europe.

Price and income elasticities of disaggregated import demand: results from UECMs and an application

This paper presents an empirical analysis of the demand for maize, milk powder, butter, and rice imports in Cyprus, using annual time series data covering the period 1975–1994. None of these products is produced in Cyprus and all the necessary quantities are imported to meet domestic demand. The primary objective of the paper is to derive long-run price and income elasticities of import demand that can be used to analyse the impact of various policies such as the adoption of the Common Agricultural Policy (CAP) when, and if, the Republic of Cyprus joins the European Union (EU). In so doing the paper takes on board some recent developments in time series econometrics. The cointegration test used (the ‘bounds’ test) is a recent test and is based on the estimation of an unrestricted error-correction model (UECM). Parsimonious models were derived using Hendry's ‘general to specific’ approach. The estimated elasticities were subsequently used to quantify some of the implications for Cyprus had the CAP been operational in 1994.

A Comment on 'The Information Content of Earnings and Prices: A Simultaneous Equations Approach' by W.H. Beaver, M.L. McAnally, and C.H. Stinson (1997)

We comment on a recent paper by Beaver, McAnally and Stinson (1997), drawing attention to the fact that their method ignores some recent developments in time-series econometrics. We apply a bi-variate vector autoregression framework to price and earnings data of listed US companies and the S&P 500 index to capture the dynamics of this system of equations. Although some series are I(1), cointegration does not exist and consequently we are unable to estimate a vector error correction model. However, by applying generalised variance decomposition and generalised impulse response analysis, we conclude that evidence favours a linkage from prices to earnings.

Value maximization and the information content of corporate investment with respect to earnings

In this paper we study the dynamic nature of the relationship between earnings and investment. If managers act as wealth maximizers, we would expect that new investments should lead to increased earnings. However, past research has found that investment is not causally prior to earnings. Using recent developments in time-series econometrics, we show that the dynamic nature of the relationship between earnings and investment exhibits bi-directional causality. Our results are consistent with managers investing in positive NPV projects, but managers appear to face financing constraints because investment decisions are driven by the availability of internally generated earnings.

Trend Growth in British Industrial Output, 1700–1913: A Reappraisal

This paper extends the previous work of Crafts, Leybourne, and Mills on trend growth in British industrial output over the period from 1700 to 1913. Recent developments in time series econometrics and economic growth theory are brought together with improved data on industrial production to present a reappraisal of the industrial revolution. This reappraisal confirms that trend growth experienced gradual acceleration over several decades before peaking in the second quarter of the 19th century, but now emphasizes the role of technological shocks and the unpredictability and lagged effects of macroinventions.

Testing for homogeneity in demand systems when the regressors are nonstationary

AbstractAn implication of optimizing theory is that demand functions are homogeneous of degree zero in prices and nominal income. Evidence based on estimations of demand systems has repeatedly found this restriction to be rejected by the data. However, the hypothesis is often formulated in terms of regressors that are non‐stationary. This paper re‐examines the evidence for homogeneity in light of recent developments in time‐series econometrics with special emphasis on the treatment of trends. We find the demand system to be stochastically but not deterministically cointegrated. Using techniques developed for estimating cointegrating vectors in the presence of deterministic trends, we re‐estimate the demand system and find that homogeneity holds in many cases.

New developments in time series econometrics: An overview

New developments in time series econometrics: An overview