Time-varying correlations between trade balance and stock prices in the United States over the period 1792 to 2013

Nikolaos Antonakakis, Rangan Gupta and Aviral Tiwari

Journal of Economics and Finance, 2018, vol. 42, issue 4, No 9, 795-806

Abstract: Abstract The relationship between stock prices and the trade balance can be either negative or positive, depending on the signs of the wealth effect channel and the exchange rate channel. While previous studies examined this relationship in a time-invariant framework, we employ a time-varying approach so as to examine the dynamic correlations of trade balance and stock prices in the United States over the period 1792–2013. The results of our empirical analysis, which remain robust to alternative specifications, reveal that correlations between the trade balance and stock prices in the United States are indeed not constant, but evolve heterogeneously overtime. In particular, the correlations are, in general, significantly positive between 1800 and 1870, while significantly negative thereafter. The policy implications of these findings are then discussed.

Keywords: Conditional correlation; GARCH; Trade-balance and stock price Comovement; US economy (search for similar items in EconPapers)
JEL-codes: C5 E44 F3 F4 N1 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (1)

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Working Paper: Time-Varying Correlations between Trade Balance and Stock Prices in the United States over the Period 1792 to 2013 (2015)
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DOI: 10.1007/s12197-018-9428-z

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