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Are Stock Prices And Economic Activity Cointegrated? Evidence From The Us, 1950–2005

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  • STEVEN COOK

    (Department of Economics, Swansea University, Swansea SA2 8PP, UK)

Abstract

The potential cointegrating relationship between stock prices and economic activity suggested by financial and economic theory is examined. It is found that the commonly employed tests of Engle and Granger (1987) and Johansen (1988) fail to detect cointegration between stock prices and industrial production for a long span of US data. In recognition of factors which may result in a failure to detect a genuine cointegrating relationship, the analysis is extended to consider higher-powered cointegration tests, tests which allow for structural change in the cointegrating relationship and tests of asymmetric cointegration. However, despite considering a range of tests, no evidence of cointegration is detected. The results therefore do not support the predictions of financial and economic theory.

Suggested Citation

  • Steven Cook, 2006. "Are Stock Prices And Economic Activity Cointegrated? Evidence From The Us, 1950–2005," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 2(01), pages 1-10.
    • Handle: RePEc:wsi:afexxx:v:02:y:2006:i:01:n:s2010495206500035
    DOI: 10.1142/S2010495206500035
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    Citations

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    Cited by:

    1. Emrah GULAY & Mehmet Vedat PAZARLIOGLU, 2016. "The Empirical Role of Real Crude Oil Price and Real Exchange Rate on Economic Growth: The Case of Turkey," Ege Academic Review, Ege University Faculty of Economics and Administrative Sciences, vol. 16(4), pages 627-639.
    2. Iqbal Thonse Hawaldar & T. M. Rajesha & Lokesha Lokesha & Adel M. Sarea, 2020. "Causal Nexus between the Anamolies in the Crude Oil Price and Stock Market," International Journal of Energy Economics and Policy, Econjournals, vol. 10(3), pages 233-238.

    More about this item

    Keywords

    Cointegration; stock prices; industrial production; structural change; asymmetry; C12; C22; G10;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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