• OpenAccess
  • Comovement of Stock Markets—An Analysis by Nonlinear Cointegration*  [QEC 2016]
  • DOI: 10.4236/jss.2016.45010   PP.64 - 75
  • Author(s)
  • Kazumi Asako, Zhentao Liu
  • This paper proposes and estimates a statistical model of nonlinear cointegration, with applications to the stock markets of Japan and the United States. We define nonlinear cointegration as a long-run stable relationship between two time series variables even in the presence of temporary nonlinear divergence from this long-run relationship. More concretely, extending the bubble model of Asako and Liu (2013) [1] to stock price ratio variables, both upward and downward divergent bubble processes are estimated at a time. We conclude that, although two stock price indexes are not linearly cointegrated, they are considered to be cointegrated nonlinearly.

  • Booms and Busts, Stock Prices, Nonlinear Cointegration, Bayesian Estimation
  • References
  • [1]
    Asako, K. and Liu, Z.T. (2013) A Statistical Moddel of Speculative Bubbles, with Applications to the Stock Markets of the United States, Japan, and China. Journal of Banking & Finance, 37, 2639-2651.
    Engle, R.F. and Granger, C.W.J. (1987) Cointegration and Error Correction: Representation, Estimation and Testing. Econometrica, 55, 251-276.
    Asako, K., Zhang, Y. and Liu, Z.T. (2014) The Comovement in Stock Price Indexes of Japan, United States, and China: Estimation of a Nonlinear Cointe-gration. Economic Review, 65, 56-85 (in Japanese).
    Asako, K., Kanoh, S. and Sano, H. (1990) Stock Price and Bubble. In: Nishimura, K. and Miwa, Y., Eds., Stock and Land Prices in Japan—Mechanism of Price Determination, University of Tokyo Press, 57-86 (in Japanese).
    Liu, Z.T., Asako, K. and Kanoh, S. (2011) Estimation of Speculative Bubble—Application to the Stock Markets of Japan, the United States and China. In: Asakoand, K. and Watanabe T., Eds., Econometrical Analyses of Finance and Business Cycle, Minerva Shobou, 9-34 (in Japanese).
    Blanchard, O.J. and Watson, M. (1982) Bubbles, Rational Expectations and Financial Markets. In: Wachtel, P., Ed., Crises in the Economic and Financial Structure, Lexington Books, 295-315.
    Harrison, P.J. and Stevens, C.F. (1976) Bayesian Forcasting (with Discussion). Journal of the Royal Statistical Society: Series B, 38, 205-247.

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