Common Components in Co-integrated System and Its Estimation and Application: Evidence from Five Stock Markets in Asia-Pacific Chinese Region

Hsiang-Hsi Liu, Chien-Kuo Tseng
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Abstract

Abstract Previous studies on co-integration focused on whether there is co-integration between variables, and might not explore which variables are caused when co-integration exists. This study is based on a multivariate factor model and apply Quah’s decomposition theorem to derive common factors affecting long-run equilibrium, and use this common factor to explain which variables affect the formation of co-integration. Empirically, five stock markets in the Asian-Pacific Chinese region (Hong Kong, Singapore, Taiwan and China including Shanghai and Shenzhen stock markets) are the objects of analysis. According to the estimated common factor, the existence of the co-integration among the five stock markets is caused by the stock markets in Taiwan and Hong Kong. Therefore, when investing in these five stock markets, investors must incorporate and use the information of the two stock markets as a decisive factor in order to promote correct decision-making. That is, the policy authorities of these countries should promote the effective interaction and operation of the stock market. The decisive influence of stock market information in the two countries cannot be ignored. JEL classification numbers: F30, F65, G10, G15. Keywords: Co-integration, Error Correction Model (ECM), Common Component, Quah’s Decomposition Theorem.
协整系统的共同成分及其估计与应用——来自亚太华人地区五个股票市场的证据
摘要以往对协整的研究主要集中在变量之间是否存在协整,可能没有探讨协整存在时哪些变量是造成的。本研究基于多元因素模型,运用Quah分解定理推导出影响长期均衡的共同因素,并利用该共同因素解释哪些变量影响协整的形成。实证上,亚太华人地区的五个股票市场(香港、新加坡、台湾和中国包括上海和深圳股票市场)是分析的对象。根据公因子的估计,五市之间协整的存在是由台湾和香港的股票市场造成的。因此,投资者在进行这五个股票市场的投资时,必须将这两个股票市场的信息纳入和使用,作为一个决定性因素,以促进正确的决策。也就是说,这些国家的政策当局应该促进股票市场的有效互动和运行。两国股市信息的决定性影响不容忽视。JEL分类号:F30、F65、G10、G15。关键词:协整,误差修正模型(ECM),公共分量,Quah分解定理
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