Multivariate Cointegration Framework Research Articles

Cointegration of Asian Stock Markets: Empirical Evidence from India

At present stock return is significantly related to other global stock markets. The present paper empirically investigates the short run and long run equilibrium relationship between the stock market of India, Japan Hong Kong, Singapore, Malaysia, China, and Australia monthly data during January 1995 to December 2013. Researcher employs correlation test, multivariate co-integration framework, Vector Auto Regressive error-correction model and Granger causality test with reference to financial up evils in Asia and world viz., Asian crisis (1997/98), financial crisis (2008) Inflation conditions, Natural disasters, financial up evils etc. of long run relationship. Results find that the Indian stock market return is significantly co-integrated with long run and short run situations/causalities in Asian Stock returns.

Cointegration of Asian Stock Markets: Empirical Evidence from India

At present stock return is significantly related to other global stock markets. The present paper empirically investigates the short run and long run equilibrium relationship between the stock market of India, Japan Hong Kong, Singapore, Malaysia, China, and Australia monthly data during January 1995 to December 2013. Researcher employs correlation test, multivariate co-integration framework, Vector Auto Regressive error-correction model and Granger causality test with reference to financial up evils in Asia and world viz., Asian crisis (1997/98), financial crisis (2008) Inflation conditions, Natural disasters, financial up evils etc. of long run relationship. Results find that the Indian stock market return is significantly co-integrated with long run and short run situations/causalities in Asian Stock returns.

Oil and gold price dynamics in a multivariate cointegration framework

This study delivers further insights into oil and gold price dynamics and their relation to U.S. prices and the dollar exchange rate. Previous studies have frequently analyzed this issue regarding the price either of gold or of oil; however, the role of both quantities has not been analyzed simultaneously in a broader context. To tackle this caveat, we use monthly data for the nominal effective dollar exchange rate, oil, gold and U.S. prices from 1976:01 to 2011:11. We carefully analyze the long-run as well as the short-run dynamics and the long-run impact in terms of shocks, applying a cointegrated VAR model. The main conclusion we reach is that although gold and oil are both important commodities, their economic impact in terms of their shocks differs significantly. In the long-run, both quantities seem to be positively related and shocks to the gold price drive the system. In addition, the gold-oil spread is positively related to U.S. consumer prices, which implies a stronger relationship of consumer prices to the former.

The short-run and long-run trade balance response to exchange rate changes in Malawi

The objective of this paper has been to examine the short-run and long-run effects of real exchange rate changes on the trade balance in Malawi. The model was estimated using the multivariate cointegration framework proposed by Johansen (1988). The results from the study show that the impact of a real depreciation on the trade balance is not significant enough to change the trade pattern in the long-run. Further, while a J-curve pattern is observed in the short to medium term, the improvement that follows a deterioration is not significantly different from the old equilibrium levels. On the other hand, the trade balance seems to respond more positively to shocks in domestic income. These findings have important policy implications for policy-makers. The long-run insignificance of the real exchange rate movements on the trade balance and the importance of domestic income in determining trade patterns suggest that policies aimed at improving the country’s trade competitiveness should first focus on internal supply-side policies that give a conducive environment for the production of exportables and import-substitutes. Focusing on the external approach (that is, currency devaluation) may not bring effective results as Malawi is mostly a price-taker on the international market, and would thus not be able to influence external demand for her exports through price incentives that arise from exchange rate changes.

FOREIGN DIRECT INVESTMENT IN ZIMBABWE: THE ROLE OF INSTITUTIONAL AND MACROECONOMIC FACTORS

AbstractThe purpose of our research is to examine the impact of property rights on foreign direct investment (FDI) in Zimbabwe for the period 1964‐2005. While the macroeconomic determinants of FDI have been analysed to a considerable extent in past empirical work, the role of institutional factors such as the protection of property rights and the efficiency of the legal system has been underexplored. Using a multivariate cointegration framework, we use a newly constructed de jure property rights index for Zimbabwe to determine the impact of property rights on FDI. The empirical evidence shows that property rights are consistently an important explanatory variable of FDI in Zimbabwe, even after controlling for periods when there are no significant new foreign capital inflows. Other significant explanatory variables of FDI in Zimbabwe are the real gross domestic product (GDP), capital intensity, the external debt to GDP ratio, political instability as well as the educational levels.

International fish trade and exchange rates: an application to the trade with salmon and fishmeal

International fish trade is growing, and fish exports represent an important source of foreign currency for many countries. For a few countries the exports are also an essential part of the economy. We revisit the seminal paper of Richardson (1978) that addresses the issue of exchange rate pass-through in commodity markets, but in a multivariate cointegration framework. The multivariate cointegration framework allows us to test common assumptions like exchange rate pass-through, leading price, central markets, and exogeneity of exchange rates. This approach is particularly suited when studying markets for primary products. We provide empirical examples using salmon imports to Japan and fish meal exports from Peru to Germany.

Interdependence and dynamic linkages between the emerging stock markets of South Asia

AbstractThe present article examines the dynamic linkages between the stock markets of Bangladesh, India, Pakistan and Sri Lanka using a temporal Granger causality approach by binding the relationship among the stock price indices within a multivariate cointegration framework. We also examine the impulse response functions. Our main finding is that in the long run, stock prices in Bangladesh, India and Sri Lanka Granger‐cause stock prices in Pakistan. In the short run there is unidirectional Granger causality running from stock prices in Pakistan to India, stock prices in Sri Lanka to India and from stock prices in Pakistan to Sri Lanka. Bangladesh is the most exogenous of the four markets, reflecting its small size and modest market capitalization.

Long-run income and price elasticities of demand for Colombian nontraditional exports: a multivariate cointegration framework

A long run income and price elasticities of demand is estimated for Colombian nontraditional exports through a multivariate cointegration analysis. Based on the combination of cointegration and exogeneity concepts and the inclusion of the complete dynamic system, the paper shows the existence of a long-run relationship among nontraditional exports, relative price and foreign demand, and higher long-run elasticities than those provided by the long-run cointegration vector coefficients that are usually reported in the trade literature.

A Daily View of the Term Structure Dynamics: Some International Evidence

The paper employs daily interest rates from the short-end of the Eurocurrency market in order to test the validity of the Expectations Hypothesis (EH). In particular, exploiting the stochastic trends embedded in the time series the EH implications are tested in a multivariate cointegration framework. The empirical findings indicate that once daily rates are used the estimated coefficients are very close to their theoretical values as predicted by the EH. Furthermore, we cannot reject the hypothesis that the EH is an adequate description of the US yield curve. Similarly, for the German and UK yield curves the number of common stochastic trends present in their yield curves is consistent with the EH. However, the restrictions imposed by the theory on parameters of the cointegration space are rejected.

An Analysis of the Dynamic Relationships Between the South African Equity Market and Major World Equity Markets

This paper provides the first comprehensive analysis of the dynamic relationships between the South African and major world equity markets during May 1988 - May 2000. Using a multivariate cointegration framework and vector error-correction modeling the results indicate that there is a long-run relationship between the South African market and major developed markets. Over the full sample period, the US, Canada and Australia exert the most influence on South Africa, while the influence of Japan is minimal. The subperiod analysis shows that, during the Apartheid period, a long-run equilibrium relationship between South Africa and the major developed markets did not exist. In contrast, during the post-Apartheid period, the long-run relationship has become strong and statistically significant for all the major developed markets, except Japan. Overall, the results imply that South Africa is now much more economically and financially integrated with major developed markets, and that the removal of Apartheid has played a significant role in this process

Price interactions between salmon and wild caught fish species on the Spanish market

The introduction and rapid expansion of farmed salmon production in the mid 1980s has transformed the international market for salmon. Spain is one of the most important markets for fish within Europe and the world, and has seen a substantial increase in its demand for salmon. As in other European countries, this has raised concerns that the increased supply of salmon to Spain may have detrimental effects on the market prices of traditional (wild‐caught) species. In this paper, the extent to which salmon competes with the main traditional fish species in the Spanish market is examined using market delineation methodologies. In particular, the potential interactions between species is examined in a multivariate cointegration framework. The results suggest that salmon is at best only a weak substitute for tuna, hake and whiting, but no significant interaction could be found.

Global money market interrelationships

This study extends the literature dealing with money market interrelationships by analyzing the behavior of yields on assets denominated in five major world currencies in three different geographic markets within a multivariate cointegration framework. Basic findings include: (1) same currency money market yields are cointegrated across countries; (2) domestic markets and the Eurocurrency markets are closely linked, as are the Eurocurrency markets and the Asian currency markets; (3) the relationships between domestic markets and the Asian offshore markets are the weakest of those tested; and (4) only one common factor in three geographic markets indicates a global market, whereas significant causal effects suggest that a degree of market segmentation remains.

India's trade balance in the 1980s an econometric analysis

The paper is an examination of India's trade balance in the 1980s. The approach attempted is of examining the bilateral trade balances of India with nine trading partners from the non-communist bloc. The long-run equilibrium relations are studied via two VAR models in Johansen's multivariate cointegration framework. Five hypotheses of interest are singled out for attention. The nominal and real exchange rates consistently emerge as important influences on the trade balance. However, as the exchange rates fail weak exogeneity tests, policy implications are not clear cut.

The U.S. dollar in global money markets: A multivariate cointegration analysis

This study extends the money market integration literature in two ways. First, it analyzes dollar yield behavior within a multivariate cointegration framework as opposed to the usual bilateral approach based on stock adjustment models or Granger/Sims causality test variants. Second, the relationships between dollar yields in four different geographic markets-domestic U.S. (New York), Eurodollar (London), Singapore and Hong Kong-are analyzed, providing a more global perspective than earlier studies. The results indicate that: (1) simple autoregressive models are inadequate for studying interest rate relationships because the series are cointegrated; and (2) bivariate analysis of money market time series may yield misleading results.

Does the DM Dominate the Euro Market? An Empirical Investigation

Starting point is the 'German Dominance Hypothesis,' according to which Germany has a dominant position within the EMS. This makes it impossible for other member countries to pursue their own monetary policies. Using monthly data of three-month Euro market rates from 1980 to 1988, for the U.S., Germany, the U.K., the Netherlands, France and Italy, we test this hypothesis in a multivariate cointegration framework. We find that Germany has a strong position in Europe, which is not restricted to the EMS. Concerning long-run development, one might speak of a dominant position. However, there are short-run relations between European countries which are not linked to relations with Germany. Copyright 1993 by MIT Press.