Long-run Co-movements Research Articles

The resilience dynamics of energy ETF accessibility and stock market sentiment in China during the post-pandemic era

This paper investigates the dynamic interaction between energy ETF accessibility and stock market sentiment through the lens of resilience during the post COVID-19 pandemic period. We find that they tend to positively co-move in the long run. Adverse exogenous shocks on one of them not only have a persistent impact on itself but also cause non-diminish damage to the other. Compared to stock market sentiment resilience, energy ETF accessibility resilience is more constrained by the long-run co-movement. The co-movement is not significantly reshaped by possible structural time-breaks or Markovian regime shifts. Further exploration based on wavelet coherence analysis provides evidence for a stable and even gradually strengthening positive coherence between the two types of resilience in a volatile environment. Accordingly, our findings can offer valuable insights for financial regulators to achieve their designed objectives in the secondary markets of energy and stocks.

Asymmetric connectedness among BSE SENSEX, INR–USD exchange rate, gold price and crude oil price: fresh evidence from nonlinear ARDL

PurposeThis paper investigates the asymmetric connectedness among the Indian stock market, crude oil price, gold price and the USD–INR exchange rate.Design/methodology/approachWe construct a nonlinear autoregressive distributed lag model that contains the four aforementioned variables. We further used the pairwise Granger causality test to identify the direction of causality.FindingsThe results verify an asymmetrical long-run co-movement between the Indian stock market index, exchange rate, international crude oil prices and gold prices. In the long run, the performance of the Indian stock market is mainly affected by both positive as well as negative shocks in the INR–USD exchange rate, positive shocks in gold prices and positive shocks in crude oil prices. Further, a feedback mechanism is observed between positive shocks in the INR–USD exchange rate and Indian stock market performance.Originality/valueThe research paper revisited the linkage among the variables using a novel methodology proposed by Shin et al. (2014).

MARKET INTEGRATION OF SWEET LIME BETWEEN DOMESTIC AND INTERNATIONAL MARKETS

The study focused on the integration of domestic and international markets for sweet limes during 2021. The co-integration of commodity prices was considered to be necessary for the implementation of a successful marketing reform for which both domestic and international market prices are required. Due to the lack of information regarding international prices, export price information was gathered from thewebsite of the Agricultural and Processed Food Products Export Development Authority (APEDA), and secondary data regarding domestic prices of sweet lime was gathered from the website of the Agricultural Marketing Information Network (AGMARKNET). The annual average prices data for the chosen markets were gathered, and the Pearson correlation coefficient and Johansen’s co-integration analysis approaches were used to analyse the relationship between the chosen market pair. Both markets were found to be correlated through correlation analysis, and the findings of the Johansen Co-integration rank, trace test, and eigen value statistics test were used to analyse the integration among the markets. The study’s findings on market integration reveal how closely related the selected market places’ pricing are to one another. Additionally, this research demonstrated that the model’s variables exhibited an equilibrium longrun co-movement with the market price series.

The effects of uncertainty on the dynamics of stock market interdependence: Evidence from the time-varying cointegration of the G7 stock markets

This study investigates the dynamic pattern of interdependence among the stock markets of the G7 member countries over the period from 1990 to 2023. The state-space formulation of the time-varying cointegrating coefficient makes it possible to examine the potential drivers of disruption in the long-run co-movement of markets. The results reveal that variations in a number of financial risk factors, economic policy uncertainty (EPU) and world geopolitical risk (GPR), have a significant impact on cointegrating coefficients. Further analysis on the co-movement of the augmented and the unaugmented cointegrating coefficients suggests that globalisation has reduced market segmentation causes to our risk factors.

Long-run relationship between the unemployment rate and the current account balance in the United States: An empirical analysis

In recent years, political rhetoric implying international trade hinder employment has gained momentum. We argue that the dynamics between the unemployment rate and the current account balance have both economic and political relevance. The presence of cointegration between the unemployment rate and the current account balance to GDP ratio and the nature of their short-run fluctuations will help us analyze the dynamics between the two objectively to evaluate the political rhetoric. We use quarterly data from 1948: Q1 to 2020: Q1 on the unemployment rate and current account balance to GDP ratio in the United States. Traditional cointegration tests fail to detect any cointegration. However, threshold cointegration tests confirm statistical evidence of threshold cointegration between the two. The estimated threshold vector error-correction model shows statistically significant evidence of falling unemployment rate coupled with deteriorating current account balance. This finding indicates that as unemployment rates go down, the current account balance deteriorates to maintain the long-run co-movement. Arguably, as the unemployment rate decline, concurrently imports rise faster than exports causing the current account balance to deteriorate. This finding thereby refutes the political rhetoric.

DYNAMIC LINKAGES AND INTEGRATION AMONG FIVE EMERGING BRICS MARKETS: PRE- AND POST-BRICS PERIOD ANALYSIS

This study aims to explore dynamic linkages and integration among emerging markets of BRICS, especially comparing the pre- and post-BRICS formation period behaviors and further comment upon the portfolio diversification opportunities available for global investors. Weekly closing indices of BRICS stock markets for the period 2000–2020 have been taken. Considering BRICS formation year, total period is divided into two sub-periods, pre- and post-BRICS periods. Short-run relationship has been measured through Granger causality, VAR, IRF and VDC. For long-run co-movement, Johansen co-integration is applied. To explain asymmetrical response of the market, E-GARCH Model is applied. Both Granger causality and VAR model confirm presence of short-run inter-linkages among BRICS during post-BRICS period. Johansen co-integration test also establishes more co-integrating equations during post-BRICS. E-GARCH result indicates a strong presence of asymmetry effect in the volatility of BRICS stock returns during post-BRICS and concludes the presence of leverage effect in all the BRICS markets. By integrating the findings with relevant literature, authors propose a framework that establishes BRICS formation, trade agreements and collaboration with each other has resulted into a strong relationship among BRICS nations during post-BRICS period and hints a little opportunity to global investors for portfolio diversification in short-run but no opportunity in the long-run.

Is there a long-run relationship between the unemployment insurance and the labor force participation rate in the USA? A nonlinear analysis

PurposeThis paper explores the evidence of a long-run co-movement between aggregate unemployment insurance spending and the labor force participation rate in the USA. The unemployment insurance (UI) program tends to expand during an economic downturn and contract during an expansion. UI may incentivize unemployment and may also facilitate better matching in the labor market. Statistical evidence of the presence of a co-movement will thus shed new light on their dynamics.Design/methodology/approachThis research applies time-series econometric approach using monthly data from 1959:1 to 2020:3 to test threshold cointegration and estimate a threshold vector error-correction (TVEC) model. The estimates from the TVEC model investigating the nature of short-run dynamics.FindingsThe Enders and Siklos (2001) test find evidence of threshold cointegration between the two indicating the presence of long-run co-movement. The estimates from the TVEC model investigating the nature of short-run dynamics find evidence that the growth in aggregate UI spending and the growth in labor force participation rate adjust simultaneously to maintain the long-run co-movement above the threshold in the short run. The author also observes the same short-run dynamics for the growth in aggregate UI spending and the growth in the labor force participation rate for females.Research limitations/implicationsThis model is bi-variate by construction and does not address causality.Practical implicationsThe author argues that the UI program positively impacts the female labor market outcomes, for example, better matching. This finding may explain the upward trend in the labor force participation rate for females in the USA.Social implicationsThe research findings may justify the transfer programs for minority and immigrants.Originality/valueThis is first research that analyzes the UI programs impact on the labor force participation using a macroeconometric approach. To the best of the author's knowledge, this is the first study in this genre.

Linkage of Electricity with Agricultural Growth and Technology Factors: An Illustration of India’s Case

Understanding the relationship between electricity consumption and economic growth is crucial for formulating efficient energy policies for all sectors in general, and for agriculture in particular. To study this, an empirical examination of the long-run co-movement and the causal relationship between electricity consumption and real gross state domestic product (GSDP) from agriculture and its allied sectors is attempted. The agricultural sector involves the use of different input technologies that are further influenced by electricity consumption. To account for this technology-enabling effect of electricity, we further take up an analysis of the relationship between electricity consumption and agricultural technology factors: fertilizer consumption, the share of irrigation, area under cereal, and the extent of mechanization. We use both state (data from 17 states for the period 1993–2017 for the electricity–GSDP relationship) and country-level data (for the period 1980–2018 for the electricity–technology factors relationship) in the analysis. Since short-period time series datasets analysis may yield unreliable and inconsistent results, we employed modern heterogeneous panel co-integration and panel-based error correction model techniques for analyzing the energy–growth linkage. When the heterogeneous states effect is taken into account, the empirical results fully support a positive long-run co-integrated connection between GSDP and electricity consumption. We could detect both long-run and short-run unidirectional causality running from electricity consumption to agricultural growth. Further electricity consumption was also found to augment the use of technology factors in agriculture. This calls for implementing policies and strategies for achieving higher electricity use in agriculture and improved efficiency in its utilization simultaneously.

Investigating the Effect of Broad Money Supply on Stock Market Index and Market Capitalization: Evidence from Liberalized India

The present study investigates the effect of changes in money supply on both Indian stock market sensitive index and stock market overall capitalization by employing unit root test with break point, Johansen’s cointegration test, vector error correction (VEC) model, VEC Granger causality test, variance decomposition, and impulse response function. The result of the unit root test reveals that all the variables are nonstationary in levels but become stationary at the first-order difference. The unit root test further reveals that there are structural breaks in the mid-1990s or 2000s. The Johansen’s cointegration test reveals that the Indian stock market index and stock market capitalization are individually cointegrated with money supply. Further, the long-run co-movement between the Indian stock market and money supply and stock market capitalization and money supply is found to be positive. The results of the VEC model shows that the error correction term in the lnSENSEX–lnMS model is negative and statistically significant, while the error correction term in the lnMARCAP–lnMS model is found to be insignificant. The VEC Granger causality test shows that there is no short-run causal relationship between the variables. The variance decomposition indicates that both Indian stock market index and stock market capitalization are strongly exogenous. The impulse response function suggests that money supply has an immediate positive effect on both Indian stock market index and stock market capitalization. The investors and fund managers should take investment decisions keeping in view the positive co-movement of Indian stock market performance and broad money supply. The study recommends that the government should avoid aggressive tightening of money supply.

On the Long-Run Unemployment, Inflation, and Volatility

This paper revisits the relationship between unemployment and inflation in the long-run through the lens of a New-Keynesian model augmented with downward nominal wage rigidity (DNWR). It finds that when the labor market is affected by DNWR, this relationship goes beyond the tradeoff between the first moments of unemployment and inflation provided by the short-run Phillips curve. Higher volatility in inflation raises unemployment at the low-frequency. Increased volatility in inflation makes nominal wages more volatile but the downward rigidity constrains nominal wages from falling. Unemployment is therefore more likely to increase above the natural level to guarantee the labor market equilibrium. The theoretical findings are robust to different formalizations of DNWR and to workers that are assumed as forward-looking of DNWR. Panel regressions test the positive long-run co-movement between unemployment and inflation volatility using the data from the OECD countries. The sensitivity analysis confirms the evidence for several controls and regression specifications.

WHAT DRIVES ENERGY CONSUMPTION IN BRICS COUNTRIES? EVIDENCE FROM ARDL BOUNDS TESTING APPROACH

Rapid urbanization, openness and growth in human development index are some of the leading determinants of energy consumption in developing countries, particularly in BRICS economies (Brazil, Russia, India, China and South Africa). Thanks to their innate tendency to converge to the growth path of developed nations, BRICS countries are under increasing pressure to limit high energy consumption — triggered by outsourcing from developed nations. This paper attempts to weigh the relative importance of various determinants of energy consumption in BRICS countries between 1980 and 2016, studying in-depth the long-run co-movement pattern of energy consumption with demographic characteristics (depicting demand pressure) and macroeconomic aggregates (depicting cheap production cost). By leveraging on the trade-off between domestic and foreign demand and by employing the autoregressive distributed lag bounds testing approach, we establish differential effects of various predictors: whilst an increase in population growth rate, gross domestic product and capital account openness exert a positive and significant impact on energy consumption in Brazil, China and South Africa, foreign direct investment (FDI) and human development appear to enhance energy consumption in India, China and South Africa. The growth in external demand and the FDI inflows appear to have pushed urbanization, leading to greater energy consumption during the study period. Keeping in mind the sustainability goal, stronger green energy practices and sustainable urbanization patterns are needed to curb excessive energy sources.

AN ANALYSIS OF STOCK MARKET INTEGRATION IN THE ASIAN DEVELOPED AND EMERGING MARKETS

Purpose of the study: This study investigates Short-run, Long-run, and Casual relationships in the Asian Developed and Emerging stock market indices for the period of 19 years weekly data of stock market indices of Asian Developed and Emerging Markets which are Japan (Nikkei 225), South Korea (KOSPI), Pakistan (KSE 100), China (SSE Composite), Sri Lanka (ASPI), India (BSE 200) and Malaysia (KLSE composite) from January 2001 to December 2019.
 Methodology: To analyze long-run and short-run relationships among the Asian developed and emerging stock markets, this study practices Descriptive Statistics, Correlation Matrix, Unit Root Test, Johansen Co-Integration Test, Vector Error Correction Model, Granger Causality test, Variance Decomposition and Impulse Response Function (IRF).
 Main findings: By employing the ADF and P.P. tests, the results specify that the entire variables' data are non-stationary and stationary in exact order, which is 1st difference. The Johnson Co-integration test found one cointegration relationship, where the results are consistent with Granger causality, Variance Decomposition, and Impulse Response Function (IRF).
 Application of the study: As the current research has focused on finding out the comovements in the Asian developed and emerging markets. So, the applications are that the survey found short-run and long-run relationships in these countries' stock markets.
 The study's originality: The current study has selected seven Asian developed and emerging stock markets and weekly updated time series data to investigate short-term and long-term linkages. So, this study found long-run comovements in these stock indices, which contributes to the literature. In addition, these stock markets have limited diversification benefits for international investors, while short-term diversification benefits may exist.

An asymmetric examination of the environmental effect of tourism in China

This article employs the non-linear autoregressive distributed lag model in analysing the environmental impact of tourism in China from 2002Q1 to 2018Q4, while controlling for non-renewable energy consumption, trade openness, urbanisation, per capita GDP and its quadratic form. The approach permits the simultaneous testing of non-linearities in the short and long run. This is achieved through negative and positive partial sum decompositions of the regressor of interest. Findings from the article indicate the following: (i) long-run co-movements exist between tourism activities and environmental performance in China, (ii) tourism activities considerably damage the environment in China, (iii) the environment responds to tourism in an asymmetric manner, such that the damage caused by increasing tourism is smaller than the positive environmental effect of decline in tourism. Thus, less tourism protects the environment faster than more tourism damages it. A supplementary non-parametric test for non-linear causality was also performed. The result further provides strong evidence of a non-linear feedback causality between tourism activities and environmental performance in China in the first moment (mean) and second moment (variance). Tourism (environmental performance) is thus a significant predictor of China’s environmental performance (tourism).

Similarities in Southern African Development Community (SADC) Exchange Rate Markets Structure: Evidence from the Ensemble Empirical Mode Decomposition

ABSTRACT The need for exchange markets coordination in Africa is rooted in the quest of most economic blocs to form a monetary union characterized by a single currency and has therefore attracted the attention of researchers. The intrinsic complexity of the exchange rate market hinders researchers from producing consistently good results. The empirical mode decomposition (EMD) is a data-driven signal analysis method for nonlinear and nonstationary data. Empirical mode decomposition method can be used to divide nonlinear signal sequences into a group of well-behaved intrinsic mode functions (IMFs) and a residue, so that we can compare the similarities. In this paper, EMD and ensemble empirical mode decomposition (EEMD), a modified version of EMD, are applied to the exchange rate market of the Southern African Development Community (SADC). Through analyzing the intrinsic mode functions (IMFs) of EMD and EEMD, we find the EEMD method to perform better on the orthogonality of IMFs than EMD. We propose a new way of analyzing short and long-run comovement through the analysis of the characteristics of IMFs and residue. The analysis of the IMFs and residue obtained from EEMD showed that exchange rate markets in SADC are driven by economic fundamentals and 12 out of 15 countries examined showed some level of similarity in the long-term trend. Our findings have implications for the direction of future SADC monetary union.

Effects of the COVID-19 Pandemic on the Budgetary Mechanism Established to Cover Public Health Expenditure. A Case Study of Romania.

The COVID-19 pandemic stressed the importance of understanding the sources of vulnerabilities that can lead to a financial crisis and highlighted the predominant impact on health systems. Firstly, the paper aims to conduct a retrospective analysis of the Romanian health care system, over the period of time 1985–2019, based on our own computed sustainability index for public health. Secondly, using the Gregory-Hansen cointegration method, we provide new evidence on the causal relationship between health expenditure and GDP for Romania over the period of time 1985–2017. Based on the retrospective analysis of the long-run co-movement between health spending and GDP, the study allows one to prospectively examine not only the effects of the COVID-19 pandemic on health care spending, but also to reveal the government’s fiscal position and vulnerabilities. Our results highlight the intergenerational costs related to the policy incoherence roadmap and regulatory fragmentation, stressing the importance of economic system resilience through fiscal diligence and the consolidation of the institutional context.

Could Mergers Become More Sustainable? A Study of the Stock Exchange Mergers of NASDAQ and OMX

This study investigates whether the merger of NASDAQ and OMX could reduce the portfolio diversification possibilities for stock market investors and whether it is necessary to implement national policies and international treaties for the sustainable development of financial markets. Our study is very important because some players in the stock markets have not yet realized that stock exchanges, during the last decades, have moved from government-owned or mutually-owned organizations to private companies, and, with several mergers having occurred, the market is tending gradually to behave like a monopoly. From our analysis, we conclude that increased volatility and reduced diversification opportunities are the results of an increase in the long-run comovement between each pair of indices in Nordic and Baltic stock markets (Denmark, Sweden, Finland, Estonia, Latvia, and Lithuania) and NASDAQ after the merger. We also find that the merger tends to improve the error-correction mechanism for NASDAQ so that it Granger-causes OMX, but OMX loses predictive power on NASDAQ after the merger. We conclude that the merger of NASDAQ and OMX reduces the diversification possibilities for stock market investors and our findings provide evidence to support the argument that it is important to implement national policies and international treaties for the sustainable development of financial markets.

RELATIONSHIP BETWEEN OIL AND STOCK MARKETS: EVIDENCE FROM PAKISTAN STOCK EXCHANGE

This study documents the impact of price variations in global markets, specifically oil, on stock returns at Pakistan Stock Exchange (PSX). We select three global markets (oil, gold and currency exchange) and two PSX indices [conventional and Islamic] for a period 2009-20 to provide evidence. Monthly data for the selected time series is used for analysis. Analysis techniques include descriptive statistics, stationarity testing, Johansen cointegration, correlation and regression analysis. Findings suggest joint long-run co-movements of selected markets. Regression results indicate the significance of oil prices at 1% level, with positive signs, in the stock return generation process at PSX [for both indices conventional and Islamic]. Other selected markets (gold and currency exchange) are although significant but at a higher degree, with negative signs. For the oil market, results confirm the demand-pull inflation hypothesis in Pakistani market. Results also confirm shifting to gold market by investors in the period of reductions in stock returns. Finally, depreciation of domestic currency discourages investors in buying stocks. We recommend investors to have an eye on oil, gold and currency markets while making investment decisions at PSX. We also recommend to policymakers to take timely actions for exchange rate stability, to avoid the outflow of capital. To the best of our knowledge, this is the only study documenting the influence of global markets on stock returns at PSX in recent years.Keywords: Oil prices; Gold market; exchange rate; Stock market; PakistanJEL Classifications: G10, G11, G12DOI: https://doi.org/10.32479/ijeep.9653

Financial Innovation and Economic Growth in Nigeria a Sectoral Analysis

This study examined the effect of financial innovation on different components of real output of some selected sectors of Nigerian economy between 1990 to 2018 using panel vector Error Correction as estimation technique. Data for the study were sourced from Central Bank of Nigeria statistical Bulletin and Bureau of Statistics. Results obtained from our various estimations showed that there is long-run co-movement between sectoral real output and financial innovation variables. Result from VAR revealed that sectoral output responded heterogeneously to shocks emanating from financial innovation. Take for instance, the responses of manufacturing and Agricultural sectors to shocks from financial innovation variables were positive and significance while responses of service and construction sectors were positive but insignificant. Results obtained from variance decomposition showed that the most essential financial innovation variables which have much influenced on sectoral output in Nigeria during the study period are Automated teller machine ATM) and point of sale transaction (POS). Based on these findings, the study therefore, concludes that financial innovation has effects but not a significant effect on sectoral real output in Nigeria. The study recommends that more regulatory guide-lines should be formulated for financial institutions to perform their financial intermediation functions effectively. Keywords: Financial innovation, sectoral real output, VECM and Nigeria DOI: 10.7176/JESD/11-16-14 Publication date: August 31 st 2020

Growth in Foreign Trade in Liberalized India: The Relevance of FDI

Driven by the need of an economic model that can explain the foreign direct investment (FDI)–export relationship, especially in post-liberalized context, we make a special inquiry on whether FDI has a significant export-promoting impact in India under a time-varying parameter model with vector autoregressive specification. The Johansen’s co-integration test suggests a significant and positive long-run co-movement between FDI and export. The vector error correction model (VECM) confirms a unidirectional long-run causality from export to FDI. However, the Granger causality test establishes a bi-directional causal relationship between these variables in short run. Further, the foreign trade (FT) is found to be a strongly exogenous variable as per the variance decomposition analysis. Again, the impulse response function analysis suggests that the responses generated from a positive shock of FT to FDI and vice versa are small and initially negative, afterward remain steadily positive at a constant level. The study finally recommends the policymakers to channelize the inward-FDI into tradable goods industries rather than only linking it to service sector growth to reap the long-term benefit. In this regard, China’s effort to channelize inward-FDI into manufacturing sectors and the resultant momentous success in export performance can be taken as a classic example for FDI-led foreign trade promotion.

How far is FDI relevant to India\u2019s foreign trade growth? An empirical investigation

The study seeks to foster fresh empirical evidence on how FDI is relevant to the foreign trade growth in India under a time-varying parameter model with vector autoregressive specification. The Johansen’s cointegration test documents a significant and positive long-run co-movement between FDI and foreign trade in India. The vector error correction model suggests a unidirectional long-run causality from foreign trade to FDI. However, the Granger causality test confirms a bidirectional short-run causal relationship between these variables. Further, the variance decomposition analysis approves strong exogeneity of foreign trade. Again, the impulse response function analysis reveals that the responses generated from a positive shock of foreign trade to FDI and vice versa are small and initially negative and thereafter remain persistently positive at a constant level. The study finally concludes that the absence of long-run causality from FDI to export is the result of much domestic market orientation of foreign investors and less emphasis on the export-oriented sectors in India.