Common trends and common cycles in stock markets

Paresh Kumar Narayan, Kannan S. Thuraisamy

Research output: Contribution to journalArticleResearchpeer-review

7 Citations (Scopus)

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.

Original languageEnglish
Pages (from-to)472-476
Number of pages5
JournalEconomic Modelling
Volume35
DOIs
Publication statusPublished - Sept 2013
Externally publishedYes

Keywords

  • Permanent and transitory shocks
  • Stock prices
  • Trend-cycle decomposition

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