A threshold autoregressive analysis of stock returns and real economic activity

Domian, Dale L.; Louton, David A.

doi:10.1016/s1059-0560(97)90022-8

Cited by 38 publications

(23 citation statements)

References 27 publications

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“…We observe that the impact of stock market crashes shocks on these two variables is not significant on the whole period. Firstly, our result is not similar to those of Domian and Louton (1997) who find evidence that a decline in stock prices is associated with a decrease in industrial production growth, CPS (2005) which argues that the 2001 to 2002 stock market crash caused the drop in industrial production growth rate in the USA and Zakhartchouk (2012) who stipulates that an uncertainty shock (1987 stock market crash, 1998 Russian financial crisis…) negatively and significantly affects the industrial production during the first ten months. Secondly, our findings are different from the empirical evidence of Fisher (1933), Minsky (1977Minsky ( , 1982 and Mishkin (1997) which is consistent with the fact that a financial crisis generates the recession in economic activity, Barro (2001) who shows that the 1997 monetary and banking crises which developed in Asia lead to the drop in real GDP growth rate by about of 1.3% and 0.6%, respectively and Ben Abdallah and Diallo (2004) who demonstrate that the financial crises occurred in South America and in Southeast Asia during the period from 1974 to 2000 negatively influence the economic growth with a decline in the GDP.…”

Section: Impulse Responsescontrasting

confidence: 86%

“…As documented in Krugman (1999) and Cartapanis (2004), there is evidence that the Asian crisis implies the flight of foreign capital, as a result the investment of firms reduces. Domian and Louton (1997) show that a decline in stock prices is associated with a drop in industrial production growth. Starr-McCluer (1998) finds that a decrease of one dollar of the household's wealth in the USA entails the fall in the consumption of 3% to 7% during one year.…”

Section: Literature Reviewmentioning

confidence: 99%

“…The existing literature discusses the impact of stock market crashes on the real economy and finds evidence about the existence of a significant effect of stock market crashes among several developed and emerging markets. Domian and Louton (1997), CPS (2005) and Zakhartchouk (2012) focus on the effect of stock market crashes on the industrial production. They conclude that stock market crashes negatively affect the industrial production.…”

Section: Introductionmentioning

confidence: 99%

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Stock market crashes shocks and real economy in Tunisia

Hammami¹,

Boujelbène²

2017

IJAF

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Our paper analyses the effect of stock market crashes shocks on the real economy in Tunisia using the vector autoregressive (VAR) model. On the one hand, the impulse response analysis shows that the real investment growth rate negatively reacts to stock market crashes shocks. On the other hand, the variance decomposition results suggest that the stock market crashes shocks explain a larger proportion of the variability in real investment growth rate. In contrast, the real industrial production growth rate, the real GDP growth rate and the real private consumption growth rate are only a little sensitive to Tunisian stock market crashes shocks.

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Section: Impulse Responsescontrasting

confidence: 86%

Section: Literature Reviewmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Stock market crashes shocks and real economy in Tunisia

Hammami¹,

Boujelbène²

2017

IJAF

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“…Nevertheless, many more studies find that the relation between stock prices and economic growth is non-linear and is frequently asymmetric (Domian and Louton, 1997;Binswanger, 2004). For example, Liu and Sinclair (2008) find in the case of China, a oneway causality running from growth to stock prices in the long-run and running from stock prices to economic growth in the short-run.…”

Section: Literature Reviewmentioning

confidence: 99%

Time–frequency relationship between US output with commodity and asset prices

Tiwari¹,

Albulescu

Gupta

2015

Applied Economics

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Commodity and asset prices have a well-documented effect on economic growth, manifested through various channels. At the same time, the business cycle influences the commodity and asset prices. Whereas empirical evidence on the effect of commodity and asset prices on the long-run economic growth is ambiguous, most of the previous researches highlight a positive correlation in the short-run. The aim of this paper is to disentangle the short-and long-run comovements between U.S. historical business cycles and commodity and asset prices, over the period . For this purpose we use a time-frequency approach and we test the historical influence of oil, gold, housing and stock prices, over the output growth. Different from other studies, we control for the effect of other prices and monetary conditions, using the wavelet partial coherency. In line with the previous works, we discover that comovements between economic growth and commodity and assets prices manifest especially in the short-run. We also find that stock returns and housing prices have a more powerful effect on the U.S. economic growth rate than the oil and gold prices. The long-run comovements are documented especially around the World War II. Finally, when controlling for the influence of the interest rate, inflation and other commodity and asset prices, comovements become weaker in the short-run. In general the oil and housing prices lead the GDP growth, the U.S. output lead the gold prices, while there is no clear causality direction between business cycle and stock prices.

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“…Although the identifi ed links were not statistically signifi cant, they noted that the economic development positively responds to positive shocks taking place on the stock market and also that the stock markets of analysed countries imply certain information for the forecast of the economic activity. Similarly, Domain and Louton (1997) analysing the causal relationship between stock market returns and the economic effi ciency taking into account the asymmetry of the business cycle noted that the sharp declines in the economic performance are caused by the decline on stock market returns, whereas the positive performance of the stocks market is followed by the increase of economic output. Fama (1990) and Binswanger (2000) in their studies also suggested that monthly data have a little explanatory power for the analysis of the relationship between stock markets and the economic activity and quarterly or annual data seem to be more appropriate.…”

Section: Introductionmentioning

confidence: 99%

Do Stock Markets Have Any Impact on Real Economic Activity?

Krchnivá¹

2016

Acta Univ. Agric. Silvic. Mendelianae Brun.

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There is no doubt about the existence of connection between the stock markets and the real economic activity. Many researchers indicated that the stock markets causally aff ect the economic activity with the lag of three months. Contrary, the other group of researchers suggested, that these relationships are reversal, moreover some of them concluded that these relationships are reciprocal. The paper analyses the relationship between the stock markets and the economic activity in seven countries with the research objective to identify these relationships in relation of cause and eff ect. As the proxy of the stock markets are stock indices considered, while the economic activity is expressed by the Gross Domestic Product at constant prices. The correlation analysis and the Granger causality test applied on suggested vector autoregressive models are employed for the research in the paper. The paper concludes that stock markets may be considered as the signifi cant predictor of the real economic activity with the lag of one quarter, however, there is no reciprocal links between them.

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A threshold autoregressive analysis of stock returns and real economic activity

Cited by 38 publications

References 27 publications

Stock market crashes shocks and real economy in Tunisia

Stock market crashes shocks and real economy in Tunisia

Time–frequency relationship between US output with commodity and asset prices

Do Stock Markets Have Any Impact on Real Economic Activity?

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