A Historical Analysis of the US Stock Price Index using Empirical Mode Decomposition over 1791-2015

Aviral Tiwari, Arif Dar, Niyati Bhanja () and Rangan Gupta

No 201588, Working Papers from University of Pretoria, Department of Economics

Abstract: In this paper, the dynamics of Standard and Poor's 500 (S&P 500) stock price index is analysed within the time-frequency framework over a monthly period of 1791:08-2015:05. Using the Empirical Mode Decomposition technique, the S&P 500 stock price index is divided into different frequencies known as intrinsic mode functions (IMFs) and one residual. The IMFs and the residual are then reconstructed into high frequency, low frequency and trend components using the hierarchical clustering method. Using different measures, it is shown that the low frequency and trend components of the stock prices are relatively important drivers of the S&P 500 index. These results are also robust across various sub-samples identified based on structural break tests.The US stock prices are, therefore, mostly driven by fundamental laws rooted in economic growth and long-term returns on investment.

Keywords: Empirical Mode Decomposition; Stock Prices; S&P 500 Index; United States (search for similar items in EconPapers)
JEL-codes: C22 G10 (search for similar items in EconPapers)
Pages: 12 pages
Date: 2015-11
New Economics Papers: this item is included in nep-his
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Related works:
Journal Article: A historical analysis of the US stock price index using empirical mode decomposition over 1791-2015 (2016)
Working Paper: A historical analysis of the US stock price index using empirical mode decomposition over 1791-2015 (2016)
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