Time variation in the cointegrating relationship between stock prices and economic activity

David McMillan

International Review of Applied Economics, 2005, vol. 19, issue 3, 359-368

Abstract: The present paper examines whether there exists a long-run cointegrating relationship between a stock market index and output and interest rates. Moreover, estimation is conducted over the full sample and both a recursive and rolling sample to examine any time variation in the nature of the relationship. The results support evidence of a single cointegrating vector, where stock prices typically exhibit a positive relationship with industrial production and a negative relationship with interest rates. However, there is significant time variation and periods of time where contrary results are observed. As such any model of stock prices needs to account for such time variation

Keywords: Stock Prices; cointegration; time variation; JEL Classification: C22; G12 (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (8)

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DOI: 10.1080/02692170500119862

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