System Identification in Noisy Data Environments: An Application to Six Asian Stock Markets

Cornelis Los

International Finance from University Library of Munich, Germany

Abstract: This paper analyzes the systematic relationship between the stock market valuations, the nominal GDPs and the interest rates of six Asian countries, using not 'single equation regression,' but an alternative methodology based on complete, multidirectional, least squares projections. We compare the results with the spectral analysis of the information matrices and determine the noise levels. The objective is to extract the multidimensional economic system structures from the noisy empirical observations. This complete methodology sharply contrasts with the incomplete methodology of Fama (1990), Schwert (1990), etc., who presume planal relations, fit them to the multidimensional data by only one prejudiced unidirectional projection, thereby ignoring between 75% - 92% of the available covariance information and not publishing the absolute majority of all possible model projections. The results in this paper show that the analyzed countries are better analyzed using such complete multidirectional LS projections, even though the analysis is combinatorially much more complex. All six Asian financial-economic systems are high data noise environments, in which it is very difficult to separate the systematic signals from the noise. Because of these high noise levels, spectral analysis is very unreliable. We identify Taiwan's stock market, economy and financial market to be rationally coherent. In contrast, Malaysia, Singapore, Philippines and Indonesia show only partially coherent systems, while no coherent system can be identified among Japan's data.

JEL-codes: C30 C52 C53 G13 G18 (search for similar items in EconPapers)
Pages: 62 pages
Date: 2004-10-21
Note: Type of Document - pdf; pages: 62
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://econwpa.ub.uni-muenchen.de/econ-wp/if/papers/0410/0410005.pdf (application/pdf)

Related works:
Journal Article: System identification in noisy data environments: An application to six Asian stock markets (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpif:0410005

Access Statistics for this paper

More papers in International Finance from University Library of Munich, Germany
Bibliographic data for series maintained by EconWPA ( this e-mail address is bad, please contact ).