A Regime Switching Vector Error Correction Model of Analysis of Cointegration in Oil, Gold, Stock Markets

2018 ◽  
pp. 514-524
Author(s):  
Sukrit Thongkairat ◽  
Woraphon Yamaka ◽  
Songsak Sriboonchitta
Keyword(s):  
Error Correction ◽  
Stock Markets ◽  
Regime Switching ◽  
Error Correction Model ◽  
Vector Error Correction Model ◽  
Correction Model ◽  
Vector Error Correction ◽  
Vector Error

scholarly journals Co-integration and Causal Relationships: The Case of the Jordanian and Developed Stock Markets

2020 ◽  
Vol 11 (6) ◽  
pp. 188
Author(s):  
Mohamed Ibrahim Mugableh
Keyword(s):  
Error Correction ◽  
Stock Markets ◽  
Abnormal Returns ◽  
Error Correction Model ◽  
Vector Error Correction Model ◽  
Causal Relationships ◽  
Correction Model ◽  
Vector Error Correction ◽  
Vector Error ◽  
The Uk

The main purpose of this study is to investigate co-integration and causal relationships among the Jordanian, the US, and the UK stock markets. The vector error correction model is applied using yearly stock market indices series for the period, 1978 – 2018. The results reveal the existence of co-integration and causal relationships among stock markets indices. These results indicate the scope for diversification profits, where the Jordanian investors secure higher levels of mean returns on the diversified portfolios. This study is important for individual investors and policy makers in macroeconomics and finance, as stock markets affect consumption, wealth, and capital flows. The contribution of this study to the present literature is threefold. Firstly, it adds to the empirical literature an up-to-date dataset and employs a dynamic and causal approach, vector error correction model, which establishes whether market long-run equilibrium (i.e., co-integration) is stable for stock markets of Jordan, the USA, and the UK. Secondly, it analyses the performance of the Amman stock exchange for the period 1978-2018. Finally, this paper has implications for international portfolio diversification. If stock markets are co-integrated, this implies that there is an opportunity of arbitrage activity. In other words, stock markets are moving together towards long-term, and there are limited possibilities of gaining abnormal returns by diversifying investment portfolios.

Sign in / Sign up

Export Citation Format

Share Document