Dynamic interactions between private investment and the stock market: evidence from cointegration and error correction models

Laopodis, Nikiforos T.; Sawhney, Bansi

doi:10.1080/09603100600694327

Cited by 11 publications

(12 citation statements)

References 11 publications

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“…The Phillips-Perron as cited in Laopodis and Sawhney [35] unit root test is very general and can be used in the presence of heteroscedastic and autocorrelated innovations is specified as follows Eq. 2:…”

Section: Unit Root Testsmentioning

confidence: 99%

“…The third hypothesis is that the series contains a unit root but without a drift or a time trend: 3 0 H : a = 0, β = 0, δ = 1. The statistics that are used to test each hypothesis are Z(t δ ), Z(Φ 2 ), Z(Φ 3 ), respectively and their corresponding equations are as follows as cited in Laopodis and Sawhney [35] Eq. 2a-e:…”

Section: Equation 2 Tests Three Hypothesesmentioning

confidence: 99%

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Stock Market Development and Economic Growth

Vazakidis¹,

Adamopoulos²

2009

American J. of Applied Sciences

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Problem statement: This study investigated the causal relationship between stock market development and economic growth for France for the period 1965-2007 using a Vector Error Correction Model (VECM). Questions were raised whether stock market development causes economic growth or reversely taking into account the negative effect of interest rate. Stock market development is estimated by the general stock market index. The objective of this study was to examine the causal relationships between these variables using Granger causality tests based on a Vector Error Correction Model (VECM). Approach: To achieve this objective unit root tests were carried out for all time series data in their levels and their first differences. Johansen co-integration analysis was applied to examine whether the variables are co-integrated of the same order taking into account the maximum eigenvalues and trace statistics tests. A vector error correction model was selected to investigate the long-run relationship between stock market development and economic growth. Finally, Granger causality test was applied in order to find the direction of causality between the examined variables of the estimated model. Results: A short-run increase economic growth of per 1% leaded to an increase of stock market index per 0.24% in France, while an increase of interest rate per 1% leaded to a decrease of stock market index per 0.64% in France. The estimated coefficient of error correction term found statistically significant with a negative sign, which confirmed that there was not any problem in the long-run equilibrium between the examined variables. The results of Granger causality tests indicated that economic growth causes stock market development in France. Conclusion: Therefore, it can be inferred that economic growth has a positive effect on stock market development, while interest rate has a negative effect on stock market development in France

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Section: Unit Root Testsmentioning

confidence: 99%

Section: Equation 2 Tests Three Hypothesesmentioning

confidence: 99%

Stock Market Development and Economic Growth

Vazakidis¹,

Adamopoulos²

2009

American J. of Applied Sciences

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“…The dynamic specification of the model allows the deletion of the insignificant variables, while the error correction term is retained by the estimation of the co-integrated vector. : 1975: -2007 A short-run increase of economic growth per 1% induces an increase of bank credits per 0.006%, while an increase of consumer price index per 1% induces a decrease of bank credits per 1.05 for United Kingdom Table 3.…”

Section: Resultsmentioning

confidence: 99%

“…Following the studies of Vazakidis and Adamopoulos (2009c;, the Phillips-Perron unit root test according to Laopodis and Sawhney (2007), is very general and can be used in the presence of heteroscedastic and autocorrelated innovations is specified as follows Eq. 2a:…”

Section: Unit Root Testsmentioning

confidence: 99%

Credit Market Development and Economic Growth an Empirical Analysis for United Kingdom

Vazakidis¹,

Adamopoulos²

2011

American Journal of Economics and Business Administration

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Problem statement: This study investigated the causal relationship between credit market development and economic growth for UK for the period 1975-2007 using a Vector Error Correction Model (VECM). Questions were raised whether economic growth spurs credit market development taking into account the negative effect of inflation rate on credit market development. This study aimed to investigate the short-run and the long-run relationship between bank lending, gross domestic product and inflation rate applying the Johansen cointegration analysis. Approach: To achieve this objective classical and panel unit root tests were carried out for all time series data in their levels and their first differences. Johansen cointegration analysis was applied to examine whether the variables are cointegrated of the same order taking into account the maximum eigenvalues and trace statistics tests. Finally, a vector error correction model was selected to investigate the long-run relationship between economic growth and credit market development. Results: A short-run increase of economic growth per 1% induces an increase of bank lending 0.006%, while an increase of inflation rate per 1% induces a relative decrease of bank lending per 1.05% in UK. The estimated coefficient of error correction term is statistically significant and has a negative sign, which confirms that there is not any problem in the long-run equilibrium between the examined variables. Conclusion: The empirical results indicated that there is a unidirectional causal relationship between economic growth and credit market development with direction from economic growth to credit market development and a bilateral causality between inflation and credit market development for United Kingdom. Bank development is determined by the size of bank lending directed to private sector at times of low inflation rates leading to higher economic growth rates

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“…For instance, according to AlKhazali et al (2006), the market liberalization and the attempts by the governments in this region to integrate the financial markets could be one reason that there may be some level of integration in the subset of the equity markets of the GCC countries. Another study by Laopodis and Sawhney (2007) showed that there is a dynamic interaction between private investment and the equity markets for the US economy. In yet another study by Abumustafa (2008), it was noted that there are a number of political and ideological differences between the different economies in Middle Eastern markets.…”

Section: Introductionmentioning

confidence: 98%

GCC equity market indices integration

Chaudhry

Boldin

2011

Applied Financial Economics

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Integration linkages between the five financial equity market indices located in the Gulf Cooperation Council (GCC) countries are empirically analysed. Using methodologies that account for idiosyncratic factors in the data, evidence of linkages between the GCC countries are found. The findings have implications for hedging or diversification strategies, particularly in the long-run. For example, the presence of cointegration between the GCC countries provides opportunities for investor crosshedging, especially if markets differ in liquidity.

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Dynamic interactions between private investment and the stock market: evidence from cointegration and error correction models

Cited by 11 publications

References 11 publications

Stock Market Development and Economic Growth

Stock Market Development and Economic Growth

Credit Market Development and Economic Growth an Empirical Analysis for United Kingdom

GCC equity market indices integration

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