Common stochastic trends in international stock prices and dividends: an example of testing overidentifying restrictions on multiple cointegration vectors
Based on a cointegrated VAR model, a joint test of the within-country and crosscountry low-frequency implications of the present value model of stock prices is derived and applied to postwar annual stock market data from four European countries. Following Johansen (1995) and Johansen and Juselius (1994) the test is formulated as a test of overidentifying restrictions on multiple cointegration vectors. The analysis is similar in spirit to the analysis carried out by Kasa (1992). However, whereas Kasa analyses prices and dividends in two separate VAR models and does not test restrictions implied by the present value model on the cointegration vectors, we perform the analysis within one comprehensive VAR model and test the full set of within-country and cross-country implications by a single likelihood ratio test. The empirical results indicate the presence of common trends among dividends in the four countries; how many is, however, difficult to judge. Furthermore, the results of the tests of the overidentifying restrictions are not clearcut. If dividends share one or two common trends the restrictions are not rejected at standard significance levels. However, if dividends share three common trends, the restrictions are strongly rejected.
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.
Volume (Year): 7 (1997)
Issue (Month): 6 ()
|Contact details of provider:|| Web page: http://www.tandfonline.com/RAFE20|
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/RAFE20|
When requesting a correction, please mention this item's handle: RePEc:taf:apfiec:v:7:y:1997:i:6:p:659-665. 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: (Michael McNulty)
If references are entirely missing, you can add them using this form.