Juselius Cointegration Test Research Articles

Impact Of Social Security Expenditures On Income Distribution: Case Of Turkey

Income inequality is a significant hindrance to the growth and expansion of social welfare. Modern societies use many tools to overcome this hindrance. Social security system is one of the most known tools. The fact that social security spending improves the income distribution differently in each country, originating from the diversity of social security methods. In this study, the influence of social security expenditure on income distribution in Turkey is examined by Johansen and Juselius (JJ) Cointegration test for the period 1975-2010. The findings of the unit root tests show that all the variables are stationary at first difference and the findings of the cointegration test display that variables have a long run relationship. In addition, it is found that social security expenditure has a negative effect on income distribution in Turkey in the studied period, while economic growth has a positive effect on it.

Modelling housing prices and market fundamentals: evidence from the Sydney housing market

PurposeHousing prices in Sydney have increased rapidly in the past three decades. This leads to a debate of whether Sydney housing prices have departed from macroeconomic fundamentals. However, little research has been devoted to this area. Therefore, this study aims to fill this gap by examining the long-run association between housing prices and market fundamentals. Further, it also examines the long-run determinants of housing prices in Greater Sydney.Design/methodology/approachThe analysis of this study involves two stages. The first stage is to estimate the presence of long-run relationship between housing prices and market fundamentals with the Johansen and Juselius Cointegration test. Thereafter, the determinants of housing prices in Greater Sydney is assessed by using a vector error correction model.FindingsThe empirical results show that Sydney housing prices are cointegrated with market fundamentals in the long run. In addition, there is evidence to suggest that market fundamentals such as gross disposable income, housing supply, unemployment rate and gross domestic product are the key long-run determinants of Sydney housing prices, reflecting that Sydney housing prices, in general, can be explained by market fundamentals in the long run.Research limitations/implicationsThe findings enable more informed and practical policy and investment decision-making regarding the relation between housing prices and market fundamentals.Originality/valueThis paper is the first study to offer empirical evidence of the degree to which the behaviour of housing prices can be explained by market fundamentals, from a capital city instead of at a national level, using a relatively disaggregated dataset of housing price series for Greater Sydney.

Relationship between Macroeconomic Variables and Stock Market: Case Study from Malaysia

<p><em>This study investigate the relationship between macroeconomic variables and FTSE Bursa Malaysia KLCI, the samples are divided into 2 groups such as foreign macroeconomic variables and local macroeconomic variables, foreign macroeconomic variables consist of Gold Bullion LBM price and Dow Jones Index, meanwhile local macroeconomic variables consist of Consumer Price Index, Base Lending Rate, Exchange Rate. This study employs data from Jan 2000 to Dec 2013 which contains a monthly data set of 168 observations. There are 3 methodologies used in this study to investigate the relationship, the first test is Unit Root test which used to test the stationary of each variable, the results indicate that all the variables are stationary in first difference, this is important to use stationary variables because if the variables are not stationary, it might lead to spurious regression. The second methodology is Johansen & Juselius Co-integration test to investigate the long run relationship among these variables, the results show that the foreign macroeconomic variables and local macroeconomic variables have long run relationship with KLCI and significant. Next, this study will investigate the short run relationship between macroeconomic variables and KLCI, the results indicate that Gold, BLR and CPI can granger cause KLCI and significant at 1%, 5% significance level respectively.</em></p>

Renewable Energy Production, Energy Consumption and Sustainable Economic Growth in Turkey: A VECM Approach

There exists a highly interrelated relationship between energy, the environment and growth where the efficient management of this nexus is not only a must for sustainable development and human wellbeing but is also a basis for formulating sound economic policies harnessed with energy and environmental policies. Thus, this paper aims at investigating the causal relationships among renewable energy production, total energy consumption and economic growth for Turkey both in the long and short runs. The analyses are conducted by using the Johansen–Juselius co-integration test, the vector error correction model, Granger causality, impulse-response functions and variance decomposition for the period 1980–2016. Our findings obtained for the causal relationship between renewable energy and economic growth points to a bidirectional relationship both in the short and in long runs that promote feedback hypothesis, and it also reports a causal relationship running from energy consumption to economic growth both in the short and long runs, supporting the growth hypothesis. However, no consistent result could be obtained for the short run relationship from economic growth to energy consumption. These results indicate that increased renewable energy production and decreased energy consumption are vital for Turkey’s sustainable development.

Financial cointegration and spillover effect of global financial crisis: a study of emerging Asian financial markets

This paper examines the financial cointegration and spillover effect of the global financial crisis to emerging Asian financial markets (India, China, Pakistan, Malaysia, Russia and Korea). The analysis used daily stock returns, divided into three time periods: pre-, during and post-crisis from 1 July 2005 to 30 June 2015. We applied the Johansen and Juselius cointegration test, the vector error correction model (V.E.C.M.) and the G.A.R.C.H.-B.E.K.K. model for an examination of integration and conditional volatility. We find long-term cointegration between the U.S. market and emerging stock markets, and the level of cointegration increased after the crisis period. The V.E.C.M. and impulse response function reveal that a shock in the U.S. financial market has a short-term impact on the returns of emerging financial markets. Past shocks and volatility have more effect on the selected stock markets during all time periods. The Korea Composite Stock Price Index and the Bombay stock exchange (B.S.E.) are the only stock markets that have cross-market news and volatility spillover effects during the crisis period. After the crisis period, news effects are positive on the B.S.E. and the Russian Trading System and have a negative effecton the Kuala Lumpur Stock Exchange and the Shanghai Stock Exchange.

Empirical Analysis of Factors Influencing Residential Property Prices in Malaysia

This study concerns the factors influencing the prices for residential properties in Malaysia as well as their relationship towards residential property prices. The data collected and analysed in this research is from quarter one year 2000 to quarter four year 2015. Various determinants have been identified namely country population, Gross Domestic Product, household income, inflation and lending rates in this research. The time-series analysis methodologies adopted in this research are the Augmented Dickey-Fuller (ADF) and Philip-Perron (PP) test for unit root, Johansen and Juselius Cointegration Test, Granger Causality Test for Vector Error Correction Model (VECM) and also Variance Decomposition (VDC). In this study, these two variables, population growth (POPGROWTH) and inflation measured by the consumer price index (CPI) were found has a significant and positive effect towards the price of residential properties in Malaysia.

REVISITING THE DETERMINANTS OF ECONOMIC GROWTH: THE CASE OF MALAYSIA

This paper examines the effects of export, Foreign Direct Investment (FDI) and trade openness on the Malaysian economic growth during 1970-2013 using econometrics techniques. The results from Johansen and Juselius (1990) cointegration test signify the existence of a long-run stable equilibrium relationship among all the variables in this model. In addition, the empirical results of this study reveal that the exports and FDI are the determinants of economic growth. Out of which, real growth domestic product (GDP) is more responsive with the country’s export compared to FDI. Therefore, policymakers should emphasise on human capital development which in turn enables the country to produce high-value-added products to enhance the sustainability of exports.

Dynamic Interaction Between Macroeconomic Fundamentals and Stock Prices in Bangladesh

This study attempts to investigate whether dynamics in fundamental macroeconomic factors significantly influence the stock prices of Bangladesh by applying cointegration test, Granger causality test based on the Vector Error Correction Model (VECM), Variance Decomposition and Impulse Response Analysis. Johansen and Juselius cointegration test detect six cointegrating vectors and a short-run and long-run relationship is investigated by normalizing the first cointegrating vector corresponding to the largest Eigen-value. We find a long-run positive relationship between stock price and IP, CPI, EX, and RT but a negative relationship between stock price and M2 and interest rate (both TB & GB). Empirical findings of this study reveal that no macroeconomic variables except TB Granger cause stock price in short run. Variance Decomposition analysis shows that most of the stock price variance can be explained by its own shocks in the shorter horizon but its magnitude diminishes over the long horizon which is about 26.77% after 24 months. Therefore, empirical results suggest that stock prices are weakly exogenous relative to the macroeconomic variables. Findings of the study have important implications to market participants and financial analysts when they have chosen to invest in Bangladesh stock market.

Macroeconomic Impact on Stock Market Returns and Volatility: Evidence from Sri Lanka

This paper examines the relationship between stock market returns and selected macroeconomic variables and examine the impact of macroeconomic uncertainty on stock market volatility in Sri Lankan stock market. Interest rate, inflation, money supply and exchange rate are selected as a set of exogenous variables to represent the macroeconomic factors that influence the stock market, returns and volatility. The sample includes monthly stock market index and macroeconomics data from 1998 to 2016 covering 228 data points. In achieving research objectives, Vector Error Correction Model (VECM) and Exponential Generalized Autoregressive Conditional Heteroskedasticity (EGARCH) models are specified and estimated. The results of Johansen Juselius cointegration test indicate a long run relationship between macroeconomic variables and stock returns. Particularly, the results of cointegration test suggest that there is a significant negative effect of Treasury bill Rate (TBR) and Exchange Rate (EXR) on stock returns while significant positive long run effect of Money Supply (MSI) / Inflation (INF) on stock returns. The Error Correction Term (ECM) in the VECM model indicates only 4.1 percent of the long run shock adjusted in the short run period and supports the argument of weak form of market efficiency in the Colombo Stock Exchange (CSE), Sri Lanka. Further, the results of the EGARCH model evidence the presence of asymmetric volatility in the monthly stock returns which suggest that the bad news in the CSE has larger effect on the volatility of the stock market than the good news. Similarly, the model establishes that interest rate and money supply create macroeconomic risk to the volatility of the stock market returns in Sri Lankan context. Accordingly, this paper, as a whole, conclusively establishes that the stock returns and market volatility are dependent on macroeconomic variables. These findings hold managerial and policy implication at least to the Sri Lankan policy makers, market regulators, investors and market analysts. The test results suggest the information inefficiency in the Colombo stock market. Further, Investors in the market should look at the systematic risks revealed by the money supply and short term interest rates when structuring portfolios and diversification strategies. Policymakers may need to take these macroeconomic variables into account when formulating economic and financial policies.

What Does the Relationship among Unit Trust Funds Indicate about Optimal Portfolio Investment Diversification Strategy? The Case of the Malaysian Islamic Unit Trust Funds Industry

In the Malaysian unit trust funds (UTFs) industry, the performance of funds is often below the market portfolio and risk-free returns, as the fund managers in Malaysia show poor selectivity performance and lack of timing skills. Individual investors, therefore, need to build and diversify their portfolio investment beyond the fund managers’ portfolio for further risk mitigation and return enrichment. This study investigates the long- and short-run relationships among all net asset values (NAV) of Islamic UTFs in Malaysia over the period from April 2006 to December 2015, using the Johansen–Juselius cointegration test and vector error correction model (VECM) framework. The overall results show that the NAV of all Islamic funds share a long-run equilibrium relationship in Malaysia. On the other hand, the Engle and Granger causality test found that the Malaysian UTFs industry is an inefficient market and experiences predictable behaviors in the short run. The study, therefore, will contribute to both investors and policymakers. Investors (unit holders) could strategize and diversify their portfolio in the long run based on the degree of relationship among all the Islamic funds to achieve better risk–return trade-offs. In the short run, the result may help them predict the behavior of the funds’ NAV in the near future. For policymakers, the Securities Commission of Malaysia, and the Federation of Malaysian Unit Trust Managers can gain enormous advantages to further improve the UTFs industry by focusing on market price efficiency and a robust regulatory framework of portfolio diversification strategies for each type of fund to be more flexible and to help in eliminating such restrictions on fund managers’ operation diversification for improving UTFs returns to align them with the experience of the developed market.

Electricity and growth nexus dynamics in Singapore : Fresh insights based on wavelet approach

This study examines the empirical relationship of electricity generation (EGEN) and economic growth (IPI) in Singapore by using the flexible properties of the wavelet approach. This innovative technique allows the decomposition of time-series across time scales. In this study, we used continuous wavelet transform, cross wavelet and wavelet coherence ratios to investigate the relationship between EGEN and IPI by using the monthly data from 1983(1) to 2016(1). Results of autoregressive distributed lag and Johansen Juselius cointegration tests show that there is a significant long-run relationship the mentioned variables in Singapore. Furthermore, results indicate that there is a unidirectional causal relationship running from EGEN to IPI in the long run while a bidirectional causal interplays are depicted between the of EGEN on IPI in medium run. Thus it can be recommended that government needs to increase electricity generation and further providing and nurturing the expansion of electricity supply in country which will ultimately benefits the economic growth.

Causality nexus between trade, political instability, FDI and economic growth: Nigeria experience

The purpose of this study is to examine the causal relationship between FDI inflow, volume of trade, political instability, and gross domestic product (GDP) in Nigeria using time series data from 1981 to 2014. The ADF and Phillips Perron (PP) tests were used to see whether all variables are stationary. Consequently, the Johansen and Juselius cointegration tests were employed to investigate the existence of long-run relationship among the variables. The findings indicated that there was a long-run relationship among the variables used in this study. The multivariate Granger causality test was carried out using the VECM approach to analyse the causal links among all the variables. A bidirectional causality was discovered between the FDI inflow and economic growth (GDP), but there was one-way direction between political instability and FDI, as well as between political instability and GDP. Apart from that, there was also one-way relationship between FDI and volume of trade within the stated period. The results from this study can be used as a guidance for policymakers on FDI, where the government can pay more attention on the issue of political instability and insecurity. The government needs to review and implement a strong, vibrant policy to ensure maximum security and peace in the country with the purpose of attracting more foreign investors.

Impact of Capital Market on Domestic Resource Mobilization for Economic Development in Nigeria (2000-2015)

<p><em>The</em><em> </em><em>study investigated the impact of Nigerian capital market on domestic resource mobilization for economic development,</em><em> </em><em>using time series data from 2000 to 2015. The study employed secondary data obtained from the Central Bank of Nigeria Statistical Bulletin, the Nigerian Stock Exchange Fact Book and Securities and Exchange Commission database. To evaluate the impact of the independent variables on the dependent, the Ordinary Least Square (OLS) method of estimation was employed. Augmented Dickey Fuller (ADF)</em><em> </em><em>test was used to identify the order of integration. Economic growth was proxied by Gross Domestic Product (GDP) while the capital market variables considered include: Market Capitalization (MCAP), Total New Issues (TNI) and Value of Transactions (VLT).</em><em> </em><em>Applying Johansen and Juselius co-integration test, the result showed that there was at most one co-integrating equation in the model, implying that there is a long run relationship between the variables in the model. The causality test results suggest bidirectional causation between the GDP and the Value of Transactions (VLT) and to the GDP but not vice-versa. Using two-tailed test, the F-statistics is significant at 5 percent level of significance. Furthermore, there was no evidence of reverse causation from GDP to market capitalization and there was no evidence of independence causation between the GDP and Total New Issues (TNI).</em><em> </em><em>The study showed that the major problem with domestic resource mobilization in Nigeria have been that not enough savings are being generated to facilitate the required investment. Also, the type of savings available does not easily make financial intermediation possible. The Nigerian stock market has been constrained by policies that tend to make the exchange look like a mechanism by which government raise loan finance rather than an instrument for mobilizing industrial finance. It is recommended therefore that the regulatory authority should appraise and modify the restrictive policies that constrained resource mobilization capacity of the Nigerian capital market.</em></p>

Economic Growth, Domestic Investment, Real Exchange Rate and Trade Openness in India: A multi-cointegration analysis

This study examines the relationships between economic growth, gross domestic investment, real exchange rate and trade openness in Indian Economy using the Johansen –Juselius cointegration test and VEC Granger causality test. The results suggest that there exists a long-run relationship among the variables. All the estimated coefficients of the long-run equation have the correct positive signs and significant at least at the 5 per cent level. Specifically, in the long run, a 1% increase in Gross Domestic Investment (GDI) increases 0.066% in economic growth. Similarly, a 1% increase in trade openness leads to 0.082% increase in economic growth and a 1% increase in real exchange rate leads to 0.26% increase in economic growth. Thus, in the long run, Gross Domestic Investment (GDI), trade openness and real exchange rate have positively impact on economic growth. The results from the VEC Granger causality test suggest that in the short run only economic growth has short run impact on Gross Domestic Investment (GDI). The other variables have no short run impact on each other. Thus, there is a unidirectional causality from economic growth to GDI, but there is no feedback effect.

Estimating the growth effects of services sector: a cointegration analysis for Pakistan

This article empirically tests the hypothesis of Pugno (Struct Change Econ Dyn 17:99–115, 2006) that both business- and household-related services contribute in the economic growth of the country in the case of Pakistan over the period of 1960–2014. To accomplish the task, the study uses Johansen–Juselius cointegration test and autoregressive distributed lag bounds test to test the long-run relationship between the services sector and the economic growth of Pakistan. The tests reveal that the services sector has a long-run relationship with the economic growth of Pakistan. Furthermore, the estimation of cointegrating vector shows that the services sector positively contributes in the economic growth of Pakistan.

The Linkage Between Exchange Rates and Stock Prices: Evidence from Vietnam

This study researches the causal relationship between exchange rates and stock prices during pre and post financial crisis in Viet Nam, based on the collected daily data from 2005 to 2015. The paper investigates the long-run relationship between above-mentioned two variables using Johansen and Juselius (1990) co-integration test and short - run dynamic causal relationships by using Toda and Yamamoto (1995) procedure. Variance decompositions (VDCs) analysis expresses the predictable portion of exchange rates (stock prices) changes on the forecast error variance in stock prices (exchange rates). In this study, it was found that exchange rates and stock prices were non-normally distributed. Through unit root test, it was also established that both the time series, exchange rates and stock prices, were stationary at the level form itself. Further investigation into the causal relationship between the two variables using Granger Causality test not only finds a unidirectional causal relationship from stock prices to exchange rates, but also supports the traditional approach in post crisis case.

Does Kaldor’s hypothesis hold in India?

Issues relating to the interaction between the industrial sector of an economy and the overall economic activity under Kaldor’s hypothesis have been an interesting area of research. While a number of empirical studies have been carried out to test Kaldor’s hypothesis in many industrial and emerging economies, a similar study in the Indian context is conspicuously absent. With a series of comprehensive economic reforms initiatives introduced in India during the last two decades, there has been greater market orientation in the overall economy, and the inter-linkages between the industrial sector and the overall economy have assumed new dimensions. Against this backdrop, the present study empirically examines Kaldor’s hypothesis in the Indian context. For the empirical investigation, various time series econometric techniques such as Johansen and Juselius co-integration test and Granger causality test are applied to examine the relationship between industrial output and overall economic growth measured in terms of Gross National Product. The co-integration analysis takes into account the non-stationarity problem in the data, which is generally observed in various macroeconomic time series. It examines the presence of long-term stability in the relationship between two or more time series when they are integrated of order 1. The associated error correction mechanism explores the short term dynamics along with the adjustment process. We have used Indian annual data covering the period 1970-2011 for the empirical exercises. From the estimated results, it was revealed that both our time series under investigation, viz ., industrial sector output and overall GNP were non-stationary and integrated of order 1. But the Johansen-Juselius co-integration test established long-term stability in their association. The error-correction mechanism revealed that any short-term discrepancy in the relationship was corrected over time. The results also showed a unidirectional causality running from economic growth to growth in industrial sector. Thus, GNP-led industrial growth pattern exists in India, and our findings fail to provide evidence supporting Kaldor’s hypothesis in the context of fast-growing Indian economy. The findings of the present study have important policy implications. Given the fact that the industrial sector is the backbone of the overall economy, it needs to grow consistently. Particularly, the policy makers in India should strive to promote India’s manufacturing exports along with the service sector.

Impact of Terrorism on Foreign Portfolio Investment in Pakistan

This study explored the long and short run impact of Terrorism on Foreign Portfolio Investment (FPI) in Pakistan using annual data from 1995 to 2013. The stationarity of data is analyzed by using unit root test. The long run relationship is captured using Johansen and Juselius Cointegration test. The short term impact was tested through Vector Error Correction Model. The results reveal significant negative effect of Terrorism on FPI. The results best fit the concept of push and pull theory. The relation of FPI and market size is negative, and highly positive with Trade Openness and Real Interest Rate. There is also significant short term relationship between Terrorism and FPI. This study suggests that careful policies should be implemented for the purpose of minimizing terrorist activities in order to enhance FPI in Pakistan.

An Empirical Investigation into the Relationship of Crude Oil Price, Exchange Rate and Sensex

The study investigates long run relationships between oil prices, exchange rates and stock prices in India for the period April 2005 to March 2013 using monthly data. The empirical exercise consists of (1) testing for a unit root in each series (2) testing for the number of co-integrating vectors in the system (3) estimating and testing for the co-integrating relationship in the framework of a vector error correction model (4) testing the direction of causality between the variables using Granger Causality test. The results from the Augmented Dickey - Fuller unit root procedures indicate that all the three variables are first difference stationary. Johansen and Juselius cointegration test suggests that there is at most one co-integrating vector existing among the three variables and the results from Granger causality Wald test suggests that causality runs from Sensex to Crude oil, but not vice-versa.

Co-integration Analysis between the Turkish Stock Market and its Balkan Hinterland Equivalents: Proof From the 2010-2015 Period

Abstract: The purpose of this study is to investigate whether there is a co-integration amongst (3) three Balkan countries; Bosnia Herzegovina, Macedonia and Turkey in relation to the German stock market (important for the Europe scale). For this purpose, the relevant stock market’s weekly closing values (in the time series) were analyzed between the periods of September 2010 and August 2015. The long-term co-integrated relationship is analyzed by the Johansen Juselius Co-integration Test. The empirical results show that these three Balkan countries have a meaningful, but moderate relationship in reference to the stock markets. In addition, the German stock market has a more powerful effect on the Turkish stock exchange in comparison to the Bosnia Herzegovinian and Macedonian stock exchanges. This paper suggests that international investors can diversify their portfolios in these (3) three Balkan stock markets. Keywords: the Balkans, emerging stock markets, indexes, market linkages, co-integration analysis