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Testing for covariance stationarity of stock returns in the presence of structural breaks: an intervention analysis

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  • Ada Ho
  • Alan Wan

Abstract

This paper investigates whether the stock return series of Australia, Hong Kong, Singapore and the US are covariance stationary using Omran and McKenzie's (The Statistician, 48, 361-69, 1999) testing procedure which comprises the Loretan and Phillips (1994) test and an intervention analysis. The main objective of the procedure is to ascertain the role of structural breaks on the stochastic properties of the stock return series. It is found that the intervention due to the 1997 Asian financial crisis is significant in the case of Hong Kong and Singapore, for which the hypothesis of covariance stationarity cannot be rejected after the effects of the financial crisis have been properly filtered. On the other hand, the evidence suggests that neither the Asian crisis nor the 1998 currency crisis of Russia and Latin America has any significant impact on the stock return series of Australia and the US, which are found to be covariance stationary and covariance nonstationary, respectively.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics Letters.

Volume (Year): 9 (2002)
Issue (Month): 7 ()
Pages: 441-447

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Handle: RePEc:taf:apeclt:v:9:y:2002:i:7:p:441-447

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Cited by:
  1. Mahua Barari & Nityananda Sarkar & Srikanta Kundu & Kushal Banik Chowdhury, 2014. "Forecasting House Prices in the United States with Multiple Structural Breaks," International Econometric Review (IER), Econometric Research Association, Econometric Research Association, vol. 6(1), pages 1-23, April.
  2. Valadkhani, Abbas, 2005. "Pre- and Post-Dynamic GST Effects on Goods and Services Included in the CPI Basket," Economics Working Papers, School of Economics, University of Wollongong, NSW, Australia wp05-08, School of Economics, University of Wollongong, NSW, Australia.
  3. Guo, Yingwen & Zhou Z.F., Sherry, 2011. "Duration Analysis of Interest Rate Spells : Cross-National Study of Interest Rate Policy," Hitotsubashi Journal of Economics, Hitotsubashi University, Hitotsubashi University, vol. 52(1), pages 1-11, June.
  4. Andrew Worthington & Abbas Valadkhani, 2005. "Catastrophic Shocks and Capital Markets: A Comparative Analysis by Disaster and Sector," Global Economic Review, Taylor & Francis Journals, Taylor & Francis Journals, vol. 34(3), pages 331-344.
  5. Andrew Worthington & Abbas Valadkhani, 2003. "Measuring the impact of natural disasters on capital markets: An empirical application using intervention analysis," School of Economics and Finance Discussion Papers and Working Papers Series, School of Economics and Finance, Queensland University of Technology 154, School of Economics and Finance, Queensland University of Technology.

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