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Common trends and common cycles in stock markets

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  • Narayan, Paresh Kumar
  • Thuraisamy, Kannan S.

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.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 35 (2013)
Issue (Month): C ()
Pages: 472-476

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Handle: RePEc:eee:ecmode:v:35:y:2013:i:c:p:472-476

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Web page: http://www.elsevier.com/locate/inca/30411

Related research

Keywords: Stock prices; Trend-cycle decomposition; Permanent and transitory shocks;

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Cited by:
  1. Paresh Kumar Narayan & Susan S Sharma & Kannan Thuraisamy, . "An Analysis of Price Discovery from Panel Data Models of CDS and Equity Returns," Financial Econometics Series 2014_08, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.

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