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Dynamic linkage between Macroeconomic Activities and Stock Prices in Fiji

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  • Puah, Chin-Hong
  • Jayaraman, T. K.

Abstract

This paper seeks to investigate whether there is any causal relationship between capital stock prices and macroeconomic activities in Fiji. Empirical results show that all the time series data are nonstationary and cointegrated with a single vector. All the explanatory variables have been found to contribute to the long-run equilibrium relationship. The estimation of error-correction model further confirms that stock price index is cointegrated with real economic activities in the long run, and it adjusts rather fast from short-run deviations towards the long-run equilibrium level. Except for interest rate, real output, M2 and exchange rate do Granger cause stock prices in the short-run.

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File URL: http://mpra.ub.uni-muenchen.de/37671/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 37671.

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Date of creation: 2007
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Publication status: Published in International Journal of Economics and Management. 2.1(2007): pp. 229-244
Handle: RePEc:pra:mprapa:37671

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Related research

Keywords: Error-correction model; stock market; Fiji;

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  1. Newey, W.K. & West, K.D., 1992. "Automatic Lag Selection in Covariance Matrix Estimation," Working papers 9220, Wisconsin Madison - Social Systems.
  2. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
  3. Fama, Eugene F, 1981. "Stock Returns, Real Activity, Inflation, and Money," American Economic Review, American Economic Association, vol. 71(4), pages 545-65, September.
  4. Granger, C. W. J., 1988. "Some recent development in a concept of causality," Journal of Econometrics, Elsevier, vol. 39(1-2), pages 199-211.
  5. Schwert, G. William, 1987. "Effects of model specification on tests for unit roots in macroeconomic data," Journal of Monetary Economics, Elsevier, vol. 20(1), pages 73-103, July.
  6. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  7. Naka, Atsuyuki & Mukherjee, Tarun K. & Tufte, David R., 1998. "Macroeconomic variables and the performance of the Indian Stock Market," Working Papers 1998-06, University of New Orleans, Department of Economics and Finance.
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