Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5054638 | Economic Modelling | 2013 | 5 Pages |
Abstract
â¢We examine the role of permanent and transitory shocks.â¢We consider the S&P 500, Dow Jones and the NASDAQ markets.â¢We find one common trend and two common cycles.â¢Permanent shocks explain the bulk of the variations in stock prices.
In this paper we examine the role of permanent and transitory shocks in explaining variations in the S&P 500, Dow Jones and the NASDAQ. Our modeling technique involves imposing both common trend and common cycle restrictions in extracting the variance decomposition of shocks. We find that: (1) the three stock price indices are characterized by a common trend and common cycle relationship; and (2) permanent shocks explain the bulk of the variations in stock prices over short horizons.
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Authors
Paresh Kumar Narayan, Kannan S. Thuraisamy,