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Time-varying correlations between trade balance and stock prices in the United States over the period 1792 to 2013

Author

Listed:
  • Nikolaos Antonakakis

    (Webster Vienna Private University
    University of Portsmouth)

  • Rangan Gupta

    (University of Pretoria)

  • Aviral K. Tiwari

    (Montpellier Business School
    IFHE University)

Abstract

The relationship between stock prices and the trade balance can be either negative or positive, depending on the signs of the wealth effect channel and the exchange rate channel. While previous studies examined this relationship in a time-invariant framework, we employ a time-varying approach so as to examine the dynamic correlations of trade balance and stock prices in the United States over the period 1792–2013. The results of our empirical analysis, which remain robust to alternative specifications, reveal that correlations between the trade balance and stock prices in the United States are indeed not constant, but evolve heterogeneously overtime. In particular, the correlations are, in general, significantly positive between 1800 and 1870, while significantly negative thereafter. The policy implications of these findings are then discussed.

Suggested Citation

  • Nikolaos Antonakakis & Rangan Gupta & Aviral K. Tiwari, 2018. "Time-varying correlations between trade balance and stock prices in the United States over the period 1792 to 2013," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 42(4), pages 795-806, October.
    • Handle: RePEc:spr:jecfin:v:42:y:2018:i:4:d:10.1007_s12197-018-9428-z
    DOI: 10.1007/s12197-018-9428-z
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    Cited by:

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    2. Brian Opiyo Yalla & Ferdinand Okoth Othieno, 2023. "Modelling delayed correlation between interest rates and equity market returns," SN Business & Economics, Springer, vol. 3(2), pages 1-24, February.

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    More about this item

    Keywords

    Conditional correlation; GARCH; Trade-balance and stock price Comovement; US economy;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • N1 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations

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