System identification in noisy data environments: An application to six Asian stock markets
This paper analyzes the systematic relationship between the stock market valuations, the nominal GDPs and the interest rates of six Asian countries, using not 'single equation regression,' but an alternative methodology based on complete, multidirectional, least squares projections. We compare the results with the spectral analysis of the information matrices and determine the noise levels. The objective is to extract the multidimensional economic system structures from the noisy empirical observations. This complete methodology sharply contrasts with the incomplete methodology of Fama (1990), Schwert (1990), etc., who presume planal relations, fit them to the multidimensional data by only one prejudiced unidirectional projection, thereby ignoring between 75% - 92% of the available covariance information and not publishing the absolute majority of all possible model projections. The results in this paper show that the analyzed countries are better analyzed using such complete multidirectional LS projections, even though the analysis is combinatorially much more complex. All six Asian financial-economic systems are high data noise environments, in which it is very difficult to separate the systematic signals from the noise. Because of these high noise levels, spectral analysis is very unreliable. We identify Taiwan's stock market, economy and financial market to be rationally coherent. In contrast, Malaysia, Singapore, Philippines and Indonesia show only partially coherent systems, while no coherent system can be identified among Japan's data.
(This abstract was borrowed from another version of this item.)
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Canova, Fabio & De Nicolo', Gianni, 1995. "Stock returns and real activity: A structural approach," European Economic Review, Elsevier, vol. 39(5), pages 981-1015, May.
- Ross, Stephen A., 1976. "The arbitrage theory of capital asset pricing," Journal of Economic Theory, Elsevier, vol. 13(3), pages 341-360, December.
- Cornelis A. Los, 2004.
"Galton's Error and the Under-Representation of Systematic Risk,"
- Los, Cornelis A., 1999. "Galton's Error and the under-representation of systematic risk," Journal of Banking & Finance, Elsevier, vol. 23(12), pages 1793-1829, December.
- Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
- Gallinger, George W, 1994. "Causality Tests of the Real Stock Return-Real Activity Hypothesis," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 17(2), pages 271-288, Summer.
- Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-438, July.
- Fama, Eugene F, 1990. " Stock Returns, Expected Returns, and Real Activity," Journal of Finance, American Finance Association, vol. 45(4), pages 1089-1108, September.
- Lee, Bong-Soo, 1992. " Causal Relations among Stock Returns, Interest Rates, Real Activity, and Inflation," Journal of Finance, American Finance Association, vol. 47(4), pages 1591-1603, September.
- Klepper, Steven & Leamer, Edward E, 1984. "Consistent Sets of Estimates for Regressions with Errors in All Variables," Econometrica, Econometric Society, vol. 52(1), pages 163-183, January.
- Kholdy, Shady & Sohrabian, Ahmad, 1995. "Testing for the relationship between nominal exchange rates and economic fundamentals," Global Finance Journal, Elsevier, vol. 6(2), pages 121-134.
- Bittlingmayer, George, 1992. " Stock Returns, Real Activity, and the Trust Question," Journal of Finance, American Finance Association, vol. 47(5), pages 1701-1730, December.
- Engle, Robert F & Granger, Clive W J, 1987.
"Co-integration and Error Correction: Representation, Estimation, and Testing,"
Econometric Society, vol. 55(2), pages 251-276, March.
- Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
- Fama, Eugene F, 1981. "Stock Returns, Real Activity, Inflation, and Money," American Economic Review, American Economic Association, vol. 71(4), pages 545-565, September.
- George W. Gallinger, 1994. "Causality Tests Of The Real Stock Return-Real Activity Hypothesis," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 17(2), pages 271-288, 06.
- G. William Schwert, 1990.
"Stock Returns and Real Activity: A Century of Evidence,"
NBER Working Papers
3296, National Bureau of Economic Research, Inc.
- Schwert, G William, 1990. " Stock Returns and Real Activity: A Century of Evidence," Journal of Finance, American Finance Association, vol. 45(4), pages 1237-1257, September.
- 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.
When requesting a correction, please mention this item's handle: RePEc:eee:jbfina:v:30:y:2006:i:7:p:1997-2024. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.