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United we stand, divided we fall: A PANICCA test evidence for stock exchanges in OECD

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  • Afees A. Salisu

    () (Centre for Econometric and Allied Research, University of Ibadan)

Abstract

This study offers a new evidence for the nonstationary behavior of OECD stock prices using the PANICCA test of Reese and Westerlund (2016) which is a combined approach of the Principal Components-based Panel analysis of Nonstationarity in Idiosyncratic and Common components (PANIC) of Bai and Ng (2004, 2010) and the Cross-section Average (CA) of Pesaran (2007) and Pesaran et al. (2013). The results suggest that the nonstationarity evident in OECD stock prices is largely driven by idiosyncratic components while the common factors are stationary. More importantly, it is found that ignoring relevant covariates in the common factor model may lead to wrong conclusions.

Suggested Citation

  • Afees A. Salisu, 2018. "United we stand, divided we fall: A PANICCA test evidence for stock exchanges in OECD," Working Papers 049, Centre for Econometric and Allied Research, University of Ibadan.
  • Handle: RePEc:cui:wpaper:0049
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    Keywords

    Panel unit root; PANICCA; Stock exchanges; OECD;

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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