Momentum Threshold Autoregressive Research Articles

Asymmetric Wealth Effect between US Stock Markets and US Housing Market and European Stock Markets: Evidences from TAR and MTAR

Evidence of the asymmetric wealth effect has important implications for investors and continues to merit research attention, not least because much of the evidence based on linear models has been refuted. Indeed, stock and house prices are influenced by economic activity and react non-linearly to positive/negative shocks. This problem justifies our research. The objective of this study is to examine evidence of cointegrations between the US housing and stock markets and between the US and European stock markets, given the international relevance of these exchanges. Using data from 1989:Q1 to 2020:Q2, the Threshold Autoregression model as well as the Momentum Threshold Autoregression model were calculated by combining the US Freddie, DJIA, and SPX indices and the European STOXX and FTSE indices. The results suggest a long-term equilibrium relationship with asymmetric adjustments between the housing market and the US stock markets, as well as between the DJIA, SPX, and FTSE indices. Moreover, the wealth effect is stronger when stock prices outperform house prices above an estimated threshold. This empirical evidence is useful to portfolio managers in their search for non-perfectly related markets that allow investment diversification and control risk exposure across different assets.

Asymmetric and nonlinear comovements of credit default swap and bond markets: evidence from an emerging market

ABSTRACT This study examines the equilibrium and price discovery relationships between credit default swap (CDS) and bond markets through the symmetric and non-symmetric cointegration approaches, focusing on Turkish sovereign markets. While the findings, obtained using the threshold autoregressive (TAR) and momentum threshold autoregressive (MTAR) models, confirm the asymmetric and nonlinear cointegration relationship between CDS and bond markets described in a limited number of studies in the relevant literature, they also, in contrast to other relevant studies, reveal the importance of data frequency and structural breaks in price discovery research. In this context, the results show that the CDS market is the leader in price discovery in high-frequency data and after the first sub-period, and the bond market is the leader in price discovery in low-frequency data and before the first sub-period.

Asymmetric Price Transmission: A Case of Wheat in India

In the present paper, horizontal and vertical integration was carried out on the wholesale and retail prices of wheat in the major markets of India. On confirming cointegration between the wholesale and retail prices of wheat in all needs, the vector error correction model (VECM) was applied to find the speed of adjustment in the corresponding price channel. The results revealed that price signals are transmitted across regions, indicating that price changes in one market are consistently related to price changes in markets and can influence the prices in other markets. In addition to studying cointegration, threshold autoregressive (TAR) and Momentum TAR (MTAR) models were applied to test for asymmetric cointegration. Hasen and Seo’s test was used to test for the presence of threshold cointegration. It revealed a significant presence of asymmetric and nonlinear cointegration in many markets. Accordingly, a threshold VECM (TVECM) model with two regimes was applied. The results indicate that the retail price significantly responds to the deviations from the long-run equilibrium compared to the wholesale price.

TÜRKİYE KREDİ PİYASASINDA FAİZ ORANI ASİMETRİK GEÇİŞİNİN MODELLENMESİ: EŞİK EŞBÜTÜNLEŞME ANALİZİNDEN YENİ KANITLAR

The current study aims to examine the relationship between banks’ marginal cost (official policy rate) and retail rates in Turkish banking loan market. We tested asymmetric pass-through by using threshold autoregressive (TAR) and momentum threshold autoregressive (MTAR) and weekly data over the period of 2011:1 to 2021:36. Empirical results reveal that there is incomplete pass-through between policy rate and retail lending rates as vehicle, housing, and commercial loans. We find that while housing and commercial loan rates are rigid downward, vehicle loan rates are rigid upward. The weak and incomplete adjustment indicate that contestability in Turkish banking market has worsened during the last decades. Moreover, positive, and negative asymmetries in transmission process of Turkish banking system imply that impact of central bank decision on macroeconomic variables (such as inflation, growth etc.) is accepted to be weak in Turkey.

A new assessment of economic integration in East Asia: Application of an industry-specific G-PPP model

It is well known that intra-industry trade and cross-border production networks have promoted economic growth and regional integration in East Asia. However, regional supply and production chains may have been formed differently across industries, reflecting different degrees and a different scope of regional economic linkages at an industry level. This paper makes a threefold contribution. First, to assess industry-level differences, this study adopts the generalized purchasing power parity (G-PPP) model using industry-specific producer prices. Second, the momentum threshold autoregressive (M-TAR) model is employed to allow for possible nonlinearity arising from the dynamic nature of regional economic growth and development. Third, the Granger causality test is also conducted to assess whether regional economies have autonomously integrated. The empirical results reveal that economic integration has progressed more autonomously in the electrical industry, as well as in the transportation equipment industry, as China and the ASEAN countries have become the final destination markets for finished products in these two industries.

Asymmetric Pass-Through Effects of Oil Price on Economic Growth in Malaysia

This empirical analysis intends to examine the asymmetric response of economic growth when the oil price changes in Malaysia by applying threshold autoregressive (TAR) and momentum threshold autoregressive (MTAR) cointegration and asymmetric adjustment models. The results revealed that the oil price has an asymmetric impact on Malaysian economic growth. We found that when oil price increases this accelerates economic growth; however, the speeds of adjustment back to the steady position were insignificant. When the oil price dropped, oil price significantly and negatively affects economic growth for a period of time and then returns back to its normal position. The results revealed that Malaysian economic growth constantly benefits when the oil price increases and is temporarily negatively affected when oil prices drop. The results have important policy implications. This suggests that it is essential to the policy makers to consider different policy responses for hikes and drops in oil prices. The result implies that negative oil price shock would lower economic growth, however it is temporary. Therefore, policy makers might response by implementing expansionary monetary policy to stimulate economic growth. The explanation is intuitive. For example, an increase in the money supply would normally pull down the interest rate which would further encourage consumption and investment, stimulate economic growth, which would increase oil demand and push up its price.

Modeling Market Integration and Asymmetric Price Transmission Dynamics of Yam Markets in Ghana

Functioning agricultural markets are fundamental to unlock economic growth and to accelerate agricultural development. Understanding the behavior of agriculture markets is crucial for price, poverty and livelihood policy strategies in agrarian economies. To assess price transmission and market efficiencies of Ghanaian yam markets spatial market integration analysis of five major yam markets: Techiman, Tamale, Wa, Kumasi and Accra was conducted. Monthly wholesale price data between January 2006 and June 2018 were used. Results from the momentum threshold autoregressive (M-TAR) model indicated the presence of co-integration and price transmission asymmetries. Thus, price increases in Techiman reference market are more rapidly transmitted to the other regional markets than price reductions. It is recommended that the source of this type of asymmetry be investigated as it favors middlemen at the expense of producers and retailers/consumers for appropriate marketing policy intervention.

Market Integration and Price Transmission in the Vertical Supply Chain of Rice: An Evidence from Bangladesh

As a staple food, rice has an enormous market in Bangladesh in terms of market participants and the volume of the product. As the price of rice is always a sensitive factor for producers, poor consumers and policy makers, this paper investigates market integration and price transmission along the vertical supply chain of rice. Johansen’s test of co-integration confirmed that farm, wholesale and retail prices are co-integrated in the long-run. A causality test revealed that prices were found to be at wholesale levels for both the upstream and downstream markets. The asymmetry error correction model (ECM) has discovered short-run and long-run asymmetry in price transmission in the vertical supply chain where both producers and consumers were being affected due to positive and negative asymmetry. Threshold autoregressive (TAR) and momentum threshold autoregressive (M-TAR) models have confirmed threshold co-integration as well as threshold effect on asymmetry in price transmission. The results highlight the inevitability of policy implementations and increased public interventions to reduce asymmetry for engendering greater pricing efficiency in Bangladesh rice markets.

TÜRKİYE'DE ÖZEL SEKTÖR KISA VADELİ DIŞ BORCUNUN CDS PRİMLERİ ÜZERİNDEKİ ETKİSİ NEDİR? ASİMETRİK UYARLAMA YAKLAŞIMI KULLANILARAK YAPILAN BİR ANALİZ

A country’s capacity to pay short-term external debt, which reflects the fiscal strenght of an economy against adverse shocks, is significantly taken into consideration by international investors in their decision making process. It has been seen that Turkey has experienced a gradually increasing private sector short-term external debt especially in the last twenty-year period. The objective of this study is to investigate the long-run relationship between private sector short-term external debt and CDS (credit default swap) premiums in Turkey for the period of 2000:Q4-2017:Q4 by using asymmetric threshold autoregressive (TAR) and momentum threshold autoregressive (M-TAR) procedures of Enders and Siklos (2001). The results indicate that CDS premiums and private sector short-term external debt in Turkey are cointegrated. After finding cointegration, the null hypothesis of symmetric adjustment is tested against the alternative of asymmetric adjustment and the evidence of symmetric adjustment is found, suggesting that the relationship between the private sector short-term external debt and CDS premiums has the same effect in expansion and contraction periods.

Analysis of price transmission in the beef value chain using a calculated retail carcass price

ABSTRACTThe large difference between the producer price of a beef carcass and the retail prices of individual beef cuts has raised concerns among producers. These concerns are caused by the possibility of asymmetry in the market. This study examines the price transmission mechanisms in the beef market by comparing the weekly producer carcass price with a weekly calculated retail carcass price, instead of average retail prices, over a period of three years. It further estimates the causality links between the producer and retail prices. The traditional and standardised augmented Dickey–Fuller procedures were used to test for co-integration and asymmetry in price transmission. Four competing models, namely the Engle–Granger, threshold autoregressive (TAR), momentum threshold autoregressive (M-TAR) and momentum consistent TAR models, were applied. The results indicated that there is positive asymmetric price transmission between producer and retail price as retailers in the market respond quicker to shocks that squeeze their margin than those that stretch them. Market information was found to be flowing from the producer to the retailer.

Asymmetric Momentum Threshold Effect of Copper Futures Returns on Spot Returns Volatility in London Metals Exchange under High Volatility

This paper discusses the asymmetric momentum threshold effect of copper futures returns on spot returns volatility in the London Metal Exchange. Referring the Threshold Autoregressive (TAR) and Momentum Threshold Autoregressive (MTAR) models, this study utilizes a Hybrid MTAR-GARCH model to test the asymmetric momentum threshold effects of LME copper futures returns on spot returns volatility. It is revealed that there are indeed asymmetric momentum threshold effects of LME copper futures returns on spot returns volatility. This finding would be beneficial to financial decision-making concerning copper price hedging, arbitrage and investment amidst high volatility market conditions.

Oil Price and Exchange Rate Nexus in Nigeria: Are there Asymmetries

This paper examines the dynamics in the relationship between oil price and exchange rate in Nigeria by utilizing monthly data spanning January 1986 to June 2018. It specifically determines asymmetries in the relationship between oil price and exchange rate and the effect of oil price shocks on exchange rate. Threshold Autoregressive (TAR), Momentum Threshold autoregressive (MTAR) and Structural Vector Autoregressive (SVAR) models were employed for the analysis. Findings of TAR and MTAR models confirm the absence of asymmetric cointegration, hence leading to the conclusion that in the case of Nigeria, there are no asymmetries in the relationship between oil price and exchange rate. Findings from the SVAR model show gradual appreciation (though with some time lag) of naira following positive shocks to oil price. The study recommends among others the need for diversification of foreign exchange earnings base of the economy, so as to minimise the effect of negative shocks to oil price.

Asymmetric adjustment, non-linearity and housing price bubbles: New international evidence

In this paper, we detect the housing price bubbles of eighteen OECD countries under assumptions of asymmetric adjustment and non-linearity. To this end, we adopt the momentum threshold autoregressive (MTAR) and exponential smooth transition (ESTR) approaches in this study. In order to consider the possibility of asymmetry between regimes of positive and negative changes in the price-rent ratio, we modify the Kilic (2011) and Park and Shintani (2005, 2016) tests and provide their critical values, finite sample size and power via Monte Carlo simulations. Among the main results, first, it is found that the price-rent ratios of eighteen OECD nations are integrated processes of order one by using the traditional unit root tests. Second, the property of asymmetric adjustment is empirically justified for the housing markets of Belgium, Germany and the US by using the MTAR unit root test. Third, the results of the ESTR-type unit root tests point to the conclusion that the housing markets of thirteen countries are globally stationary ESTR processes, implying that the further the price-rent ratio deviates from its fundamental, the faster will be the speed of mean reversion. Finally, the results of the modified Kilic (2011) and Park and Shintani (2005, 2016) tests are in line with the ESTR unit root tests, indicating that the bubble hypothesis is not accepted.

Short and Long-term Asymmetric Farm-Retail Price Transmission Analysis in the Canadian Agri-food Industry: Evidence from Dairy and Pork Sectors with Threshold Cointegration Models

Empirical studies show that market concentration and pricing policies regulation have an important impact on price transmission. These factors lead to an asymmetric price transmission, particularly in agricultural commodities markets. This paper investigates farm-retail price transmission along the Canadian dairy and pork values chains using Threshold Autoregressive, Momentum Threshold Autoregressive, Error Correction Models and Granger causality test. Using monthly price data, we found that farm-retail price transmission is asymmetric in short and long-term between raw milk and butter price while it is symmetric in the cheese case. In the pork sector, price transmission is asymmetric in long-term and symmetric in short-term between farm price and respectively pork chops and bacon prices. Because of processor and retailer concentration, consumer prices respond more quickly to upward than downward of farm prices. The processors, retailers and distributors concentration along the value chain in Canadian dairy and pork sectors and the supply management regulation policies as well as income stabilization insurance program are the main factors generating this market structure. Consideration of the characteristics of farmers, processors, and retailers in the value chain and the actors’ potential reactions to the agricultural policy could better protect consumers and producers from market distortion.

The asymmetric contagion effect from the U.S. stock market around the subprime crisis between 2007 and 2010

This study employed Enders and Siklos asymmetric co-integration frameworks, including the momentum threshold autoregressive (M-TAR) and logistic smooth transition co-integration (LSTC) models, to investigate whether contagion effects had existed in international stock markets by using the changes in the asymmetric co-integration relationships between the U.S. S&P 500 Index and a total of 23 markets in Asia, Europe, and America during the subprime crisis. The main findings demonstrated that the subprime crisis did not reinforce co-movement trends between the S&P 500 Index and these stock markets, by the application of the Engle-Granger (1987) symmetric co-integration test. However, with the application of the asymmetric co-integration frameworks, both M-TAR and LSTC showed there existed contagion effects between them in the aftermath of Lehman Brothers’ bankruptcy in 2008; transition speeds between these two regimes also substantially increased in the LSTC during the financial crisis. Only the Chinese market was not affected by the U.S. market during this crisis; only an interdependence effect existed between the U.S. and China. The subprime crisis determined the degree of contagion, depending on the financial linkage to the U.S. market, which further demonstrates the differences in the causes and influence between the subprime crisis and other financial crises in emerging markets.

Price and Volatility Spillovers Between the US Crude Oil and Natural Gas Wholesale Markets

The paper examines both the time-varying price and volatility transmission between US natural gas and crude oil wholesale markets, over the period 1990–2017. Short iterations suggest that neither commodity determines other’s returns, but sub-periods with very short-lived causal relationships exist. It can be asserted that the markets are decoupled, where unconventional production further enhances the already established commodities’ independence. Using Momentum Threshold Autoregressive (MTAR) cointegration methodology, we find evidence of positive asymmetry from crude oil to natural gas prices, i.e., oil price increases cause faster adjustments to natural gas prices than decreases. We also find that an 1% change of oil price has positive and significantly larger long-term impact (between 0.01% to 0.02%) to the gas price, compared to the negligible impact of gas to oil. Volatility transmission is examined using the Dynamic Conditional Covariance (DCC)-Generalized Autoregressive Conditional Heteroscedasticity (GARCH) methodology, presenting their time-varying correlation. Results show that both commodities influence each other’s volatility at the aggregate level. Finally, we conclude that both regional commodity markets are liquid and integrated, where the market fundamentals drive their price formulation. However, although markets are decoupled and not appropriate for perfect hedging of each other, the existence of bidirectional volatility transmission and their substitutability might be useful for diversified portfolio allocation.

AN INVESTIGATION INTO THE DYNAMIC RELATIONSHIP BETWEEN CPI AND PPI: EVIDENCE FROM THE UK, FRANCE AND GERMANY

This paper examines the dynamic relationship between the consumer price index (CPI) and the producer price index (PPI) in the UK, France and Germany from 1997 to 2013. We employ the momentum-threshold autoregressive (MTAR) cointegration model for empirical analysis. The results show that the CPI and the PPI are cointegrated with bi-directional long-run Granger causality between CPI and PPI, signifying the existence of both demand-pull and the cost-push nature of inflation. The estimates of threshold vector error correction models (TVECMs) indicate asymmetric adjustments to equilibrium, where upward adjustments are statistically significant but downward adjustments are sluggish and insignificant. Moreover, we generate the unconditional half-life estimates as a measure of persistence, which reveal robust evidence of complex non-linearities in the adjustment process. Our overall results provide valuable information for policymakers to formulate inflation-control policies and optimal policy horizons under a non-linear framework.

Asymmetric cointegration and causality between natural gas consumption and economic growth in Nigeria

This paper investigates asymmetric cointegration, asymmetric adjustment, and causality between natural gas consumption and economic growth in Nigeria using the momentum threshold autoregressive (M-TAR) model and the Granger-causality test in a momentum threshold error correction model (M-TECM). The results revealed evidence of asymmetric cointegration, asymmetric adjustment which suggests that the negative discrepancies from the equilibrium error adjust more rapidly than the positive discrepancies and that there is bidirectional causality between the two variables. The implication of the results is that a shock that decreases the impact of natural gas consumption on economic growth adjusts more rapidly than a shock that increases it and that a consistent natural gas supply increases growth and similarly a rise in growth leads to rise in natural gas consumption. Therefore, policymakers in Nigeria need to confine more attention to the shocks stemming from the decrease in natural gas consumption and the country should adopt energy exploration policies.

Is there a bubble component in government debt? New international evidence

Using the debt-to-GDP ratios of the Group of Seven (G-7) plus Denmark and Finland, this paper revisits the sustainability of government debt. To this end, we employ the right-tailed unit root test, the smooth-break and the momentum threshold autoregressive (MTAR) unit root tests, respectively, under considerations that the government debt might contain bubble component and structural breaks. Among the main results, it is found that the debt-to-GDP ratios are mildly explosive based on the right-tailed unit root test. The results of the smooth-break unit root tests and the MTAR approach echo the results of the traditional unit root test, indicating that the debt-to-GDP ratios are not sustained. Generally speaking, the empirical evidences of this study indicate that the government debts of these advanced countries might not be sustainable, implying that the governments of these countries are required to balance their budgets intertemporally by setting the current value of the debts equal to the discounted sum of expected future surpluses.

Threshold Analysis of CPI and PPI

This paper examines the dynamic relationship between the consumer price index (CPI) and the producer price index (PPI) in the UK, France and Germany from 1997 to 2013. We employ the momentum-threshold autoregressive (MTAR) cointegration model for empirical analysis. The results show that the CPI and the PPI are cointegrated with bi-directional long-run Granger causality between CPI and PPI, signifying the existence of both demand-pull and the cost-push nature of inflation. The estimates of threshold vector error correction models (TVECMs) indicate asymmetric adjustments to equilibrium, where upward adjustments are statistically significant but downward adjustments are sluggish and insignificant. Moreover, we generate the unconditional half-life estimates as a measure of persistence, which reveal robust evidence of complex nonlinearities in the adjustment process. Our overall results provide valuable information for policymakers to formulate inflation-control policies and optimal policy horizons under a nonlinear framework.