Regime switching in the dynamic relationship between stock returns and inflation
AbstractThis study examines nonlinear dynamic relationships between stock returns and inflation in ten major stock markets. Using Hansen and Seo's (2002) threshold error correction model to allow for possible regime shifts in the dynamic relationship between the two variables, threshold effects are found in the adjustment towards the long-run equilibrium relationship between stock returns and inflation for three out of the ten countries considered in this study (France, Switzerland and the USA). Nevertheless, the nonlinear adjustment mechanism is not uniform but rather it is country-specific.
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Bibliographic InfoArticle provided by Taylor and Francis Journals in its journal Applied Financial Economics Letters.
Volume (Year): 1 (2005)
Issue (Month): 5 (September)
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Web page: http://www.tandf.co.uk/journals/titles/17446546.asp
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- Hansen, Bruce E. & Seo, Byeongseon, 2002.
"Testing for two-regime threshold cointegration in vector error-correction models,"
Journal of Econometrics,
Elsevier, vol. 110(2), pages 293-318, October.
- Tom Doan, . "RATS programs to replicate Hansen/Seo paper on threshold cointegration," Statistical Software Components RTZ00092, Boston College Department of Economics.
- John H. Boyd & Ross E. Levine & Bruce D. Smith, 1996.
"Inflation and financial market performance,"
9617, Federal Reserve Bank of Cleveland.
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