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Dynamic Relations between Macroeconomic Variables and the Japanese Stock Market: An Application of a Vector Error Correction Model

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  • Mukherjee, Tarun K
  • Naka, Atsuyuki

Abstract

By employing the vector error correction model (VECM) in a system of seven equations, we find that the Japanese stock market is cointegrated with a group of six macroeconomic variables. The signs of the long-term elasticity coefficients of the macroeconomic variables on stock prices generally support the hypothesized equilibrium relations. Our findings are robust to different combinations of macroeconomic variables in six-dimension systems and two subperiods. Also, the VECM consistently outperforms the vector autoregressive model in forecasting ability.

Suggested Citation

  • Mukherjee, Tarun K & Naka, Atsuyuki, 1995. "Dynamic Relations between Macroeconomic Variables and the Japanese Stock Market: An Application of a Vector Error Correction Model," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 18(2), pages 223-237, Summer.
  • Handle: RePEc:bla:jfnres:v:18:y:1995:i:2:p:223-37
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    References listed on IDEAS

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