IDEAS home Printed from https://ideas.repec.org/a/taf/applec/44y2012i23p2935-2944.html
   My bibliography  Save this article

Which way does water flow? An econometric analysis of the global price integration of water stocks

Author

Listed:
  • Eduardo Roca
  • Gurudeo Anand Tularam

Abstract

Around US$600 billion of investment is desperately needed to address forecasted huge shortages in water supply globally. A number of worldwide investors -- so-called water funds -- have started to take up this challenge. For these global water investors, knowledge about the extent of integration between the water sectors of financial markets is highly important. According to international portfolio diversification theory, the less (more) integrated markets are, the more (less) benefits there are from international diversification. In this study, we investigate the extent and manner of interdependence among the US, European and Asian water sector of the equity markets based on Vector Autoregression (VAR), Granger causality and impulse response analyses. We find that world water stock market prices are indeed significantly interdependent although this interdependence varies across time periods. Each market quickly responds to shocks from each other and completes its response within 3 days. Hence, for water investors, international diversification that is undertaken just within the water sector will not be beneficial. The result also implies that there is the risk of crossmarket contagion -- that is, price volatility spill over across water sectors of different financial markets, and therefore, water authorities in one market should take cognisance of events in other markets.

Suggested Citation

  • Eduardo Roca & Gurudeo Anand Tularam, 2012. "Which way does water flow? An econometric analysis of the global price integration of water stocks," Applied Economics, Taylor & Francis Journals, vol. 44(23), pages 2935-2944, August.
    • Handle: RePEc:taf:applec:44:y:2012:i:23:p:2935-2944
    DOI: 10.1080/00036846.2011.568403
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/00036846.2011.568403
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/00036846.2011.568403?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Henrique Monteiro, 2005. "Water Pricing Models: a survey," Others 0510002, University Library of Munich, Germany.
    2. Javier Calatrava & Alberto Garrido, 2005. "Modelling water markets under uncertain water supply," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 32(2), pages 119-142, June.
    3. Robert-Paul Berben & W. Jos Jansen, 2009. "Bond market and stock market integration in Europe: a smooth transition approach," Applied Economics, Taylor & Francis Journals, vol. 41(24), pages 3067-3080.
    4. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    5. Ralf Brüggemann & Wolfgang Härdle & Julius Mungo & Carsten Trenkler, 2008. "VAR Modeling for Dynamic Loadings Driving Volatility Strings," Journal of Financial Econometrics, Oxford University Press, vol. 6(3), pages 361-381, Summer.
    6. Pesaran, H. Hashem & Shin, Yongcheol, 1998. "Generalized impulse response analysis in linear multivariate models," Economics Letters, Elsevier, vol. 58(1), pages 17-29, January.
    7. 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.
    8. Abdulnasser Hatemi-J & Eduardo D. Roca, 2007. "Equity market price interdependence based on bootstrap causality tests: evidence from Australia and its major trading partners," Applied Financial Economics, Taylor & Francis Journals, vol. 17(10), pages 827-835.
    9. E.Panopoulou & T. Pantelidis, 2005. "Integration at a cost: Evidence from volatility impulse response functions," Economics Department Working Paper Series n1540305, Department of Economics, National University of Ireland - Maynooth.
    10. A. Tahai & Robert Rutledge & Khondkar Karim, 2004. "An examination of financial integration for the group of seven (G7) industrialized countries using an I( ) cointegration model," Applied Financial Economics, Taylor & Francis Journals, vol. 14(5), pages 327-335.
    11. Theodore Syriopoulos, 2004. "International portfolio diversification to Central European stock markets," Applied Financial Economics, Taylor & Francis Journals, vol. 14(17), pages 1253-1268.
    12. Eduardo Roca, 1999. "Short-term and long-term price linkages between the equity markets of Australia and its major trading partners," Applied Financial Economics, Taylor & Francis Journals, vol. 9(5), pages 501-511.
    13. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
    14. Z. Wang & J. Yang & D. A. Bessler, 2003. "Financial crisis and African stock market integration," Applied Economics Letters, Taylor & Francis Journals, vol. 10(9), pages 527-533.
    15. Click, Reid W. & Plummer, Michael G., 2005. "Stock market integration in ASEAN after the Asian financial crisis," Journal of Asian Economics, Elsevier, vol. 16(1), pages 5-28, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Gurudeo Anand Tularam & Rajibur Reza, 2016. "Water exchange traded funds: A study on idiosyncratic risk using Markov switching analysis," Cogent Economics & Finance, Taylor & Francis Journals, vol. 4(1), pages 1139437-113, December.
    2. Rajibur Reza & Gurudeo Anand Tularam & Xiyang Li & Bin Li, 2022. "Investments in the Asian water sector: an analysis based on the DCC-GARCH model," Palgrave Communications, Palgrave Macmillan, vol. 9(1), pages 1-9, December.
    3. Piñeiro-Chousa, Juan & López-Cabarcos, M.Ángeles & Ribeiro-Soriano, Domingo, 2020. "Does investor attention influence water companies’ stock returns?," Technological Forecasting and Social Change, Elsevier, vol. 158(C).
    4. de Bonviller, Simon & Wheeler, Sarah Ann & Zuo, Alec, 2020. "The dynamics of groundwater markets: Price leadership and groundwater demand elasticity in the Murrumbidgee, Australia," Agricultural Water Management, Elsevier, vol. 239(C).
    5. Reza, Rajibur & Tularam, Gurudeo Anand & Li, Bin, 2021. "A review of global research on private investment in the water sector," Utilities Policy, Elsevier, vol. 72(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gourène, Grakolet Arnold Zamereith & Mendy, Pierre & Ake N'gbo, Gilbert Marie, 2017. "Multiple time-xcales analysis of global stock markets spillovers effects in African stock markets," MPRA Paper 77632, University Library of Munich, Germany.
    2. Muhammad Niaz Khan & Suzanne G. M. Fifield & Nongnuch Tantisantiwong & David M. Power, 2022. "Changes in co-movement and risk transmission between South Asian stock markets amidst the development of regional co-operation," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 36(1), pages 87-117, March.
    3. Xu, Haifeng & Hamori, Shigeyuki, 2012. "Dynamic linkages of stock prices between the BRICs and the United States: Effects of the 2008–09 financial crisis," Journal of Asian Economics, Elsevier, vol. 23(4), pages 344-352.
    4. Climent, Francisco & Meneu, Vicente, 2003. "Has 1997 Asian crisis increased information flows between international markets," International Review of Economics & Finance, Elsevier, vol. 12(1), pages 111-143.
    5. Richard Tiffin & P. J. Dawson, 2002. "The Demand for Calories: Some Further Estimates from Zimbabwe," Journal of Agricultural Economics, Wiley Blackwell, vol. 53(2), pages 221-232, July.
    6. Giorgio Canarella & Stephen M. Miller & Stephen K. Pollard, 2008. "Dynamic Stock Market Interactions between the Canadian, Mexican, and the United States Markets: The NAFTA Experience," Working papers 2008-49, University of Connecticut, Department of Economics.
    7. Chien-Chiang Lee & Chun-Ping Chang, 2006. "The Long-Run Relationship Between Defence Expenditures And Gdp In Taiwan," Defence and Peace Economics, Taylor & Francis Journals, vol. 17(4), pages 361-385.
    8. Michael E. Drew & Leonard Chong, 2002. "Stock Market Interdependence: Evidence from Australia," School of Economics and Finance Discussion Papers and Working Papers Series 106, School of Economics and Finance, Queensland University of Technology.
    9. Jibo Chen & Keyao Chen & Guizhi Wang & Lingyan Wu & Xiaodong Liu & Guo Wei, 2019. "PM 2.5 Pollution and Inhibitory Effects on Industry Development: A Bidirectional Correlation Effect Mechanism," IJERPH, MDPI, vol. 16(7), pages 1-21, March.
    10. Wang, Lihong, 2014. "Who moves East Asian stock markets? The role of the 2007–2009 global financial crisis," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 28(C), pages 182-203.
    11. Vijay Victor & Dibin K K & Meenu Bhaskar & Farheen Naz, 2021. "Investigating the Dynamic Interlinkages between Exchange Rates and the NSE NIFTY Index," JRFM, MDPI, vol. 14(1), pages 1-13, January.
    12. Bley, Jorg, 2009. "European stock market integration: Fact or fiction?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 19(5), pages 759-776, December.
    13. Soytas, Ugur & Sari, Ramazan, 2006. "Energy consumption and income in G-7 countries," Journal of Policy Modeling, Elsevier, vol. 28(7), pages 739-750, October.
    14. Nieh, Chien-Chung & Yau, Hwey-Yun, 2004. "Time series analysis for the interest rates relationships among China, Hong Kong, and Taiwan money markets," Journal of Asian Economics, Elsevier, vol. 15(1), pages 171-188, February.
    15. Bley, Jorg & Chen, Kim Heng, 2006. "Gulf Cooperation Council (GCC) stock markets: The dawn of a new era," Global Finance Journal, Elsevier, vol. 17(1), pages 75-91, September.
    16. Gossé, Jean-Baptiste & Guillaumin, Cyriac, 2013. "L’apport de la représentation VAR de Christopher A. Sims à la science économique," L'Actualité Economique, Société Canadienne de Science Economique, vol. 89(4), pages 309-319, Décembre.
    17. Marin, Dalia, 1992. "Is the Export-Led.Growth Hypothesis Valid for Industrialized Countries?," The Review of Economics and Statistics, MIT Press, vol. 74(4), pages 678-688, November.
    18. M. T. Alguacil & V. Orts, 2003. "Inward Foreign Direct Investment and Imports in Spain," International Economic Journal, Taylor & Francis Journals, vol. 17(3), pages 19-38.
    19. Gediminas Adomavicius & Jesse Bockstedt & Alok Gupta, 2012. "Modeling Supply-Side Dynamics of IT Components, Products, and Infrastructure: An Empirical Analysis Using Vector Autoregression," Information Systems Research, INFORMS, vol. 23(2), pages 397-417, June.
    20. Barunik, Jozef & Krehlik, Tomas, 2016. "Measuring the frequency dynamics of financial and macroeconomic connectedness," FinMaP-Working Papers 54, Collaborative EU Project FinMaP - Financial Distortions and Macroeconomic Performance: Expectations, Constraints and Interaction of Agents.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:applec:44:y:2012:i:23:p:2935-2944. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RAEC20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.