Common trends and common cycles in stock markets

Paresh Narayan (pareshkumar.narayan@monash.edu) and Kannan Thuraisamy (kannant@deakin.edu.au)

Economic Modelling, 2013, vol. 35, issue C, 472-476

Abstract: In this paper we examine the role of permanent and transitory shocks in explaining variations in the S&P 500, Dow Jones and the NASDAQ. Our modeling technique involves imposing both common trend and common cycle restrictions in extracting the variance decomposition of shocks. We find that: (1) the three stock price indices are characterized by a common trend and common cycle relationship; and (2) permanent shocks explain the bulk of the variations in stock prices over short horizons.

Keywords: Stock prices; Trend-cycle decomposition; Permanent and transitory shocks (search for similar items in EconPapers)
JEL-codes: C22 F31 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:35:y:2013:i:c:p:472-476

DOI: 10.1016/j.econmod.2013.08.002

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