David A. Bessler

The structure of interdependence in international stock markets

This study investigates the dynamic structure of nine major stock markets using an error correction model and directed acyclic graphs (DAG). The DAG representation provides a structure of causality among these markets in contemporaneous time. Building on this contemporaneous structure and the estimated error correction model, innovation accounting techniques are applied. The results show that the Japanese market is among the most highly exogenous and the Canadian and French markets among the least exogenous in our nine-market study. The U.S. market is highly influenced by its own historical innovations, but it is also influenced by market innovations from the U.K., Switzerland, Hong Kong, France and Germany. The U.S. market is the only market that has a consistently strong impact on price movements in other major stock markets in the longer-run.

Asset storability and price discovery in commodity futures markets: A new look

This article examines the price discovery performance of futures markets for storable and nonstorable commodities in the long run, allowing for the compounding factor of stochastic interest rates. The evidence shows that asset storability does not affect the existence of cointegration between cash and futures prices and the usefulness of future markets in predicting future cash prices. However, it may affect the magnitude of bias of futures markets’ estimates (or predictions) for future cash prices. These findings have several important implications for commodity production decision making, commodity hedging, and commodity price forecasting. 2001 John Wiley & Sons, Inc. Jrl Fut Mark 21:279–300, 2001

Relative Prices and Money: A Vector Autoregression on Brazilian Data

Recent data on Brazilian agricultural prices, industrial prices, and money supply are analyzed in a vector autoregression. The empirical findings show strong, one-way, Granger-type causality from money supply to agricultural prices; while feedback is observed between industrial prices and money supply. Under the usual monetarist ordering of contemporaneous innovation covariance, agricultural prices do not adjust faster than industrial prices to a shock in the money supply.

Farm Prices, Retail Prices, and Directed Graphs: Results for Pork and Beef

Such studies say little about contemporaneous relationships among the variables X, Y, and Z. If one models data on X, Y, and Z as a vector autoregression, some assumption about contemporaneous correlation between innovations must be made. Early work applied the Choleski factorization, which is a recursive ordering between X, Y, and Z: XYZ. A more recent approach to dealing with the contemporaneous correlation problem is the so-called structural factorization, following the similar approaches of Bernanke and Sims. A problem with the former (Choleski) is that the world might not be recursive (Cooley and LeRoy, Sims). A problem with the latter is tha correct structural information might be unknown outside of a particular deductive model.

Causality and Price Discovery: An Application of Directed Acyclic Graphs

Directed Acyclic Graphs (DAGs) and Error Correction Models (ECMs) are employed to analyze questions of price discovery between spatially separated commodity markets and the transportation market linking them together. Results from our analysis suggest these markets are highly interconnected but it is the inland commodity market that is strongly influenced by both the transportation and commodity export markets. However, the commodity markets affect the volatility of the transportation market over longer horizons. Our results suggest that transportation rates are critical in the price discovery process lending support for the recent development of exchange traded barge rate futures contracts.

Price Dynamics in the International Wheat Market: Modeling with Error Correction and Directed Acyclic Graphs

In this paper we examine dynamic relationships among wheat prices from five countries for the years 1981-1999. Error correction models and directed acyclic graphs are employed with observational data to sort-out the dynamic causal relationships among prices from major wheat producing regions: Canada, the European Union, Argentina, Australia, and the United States. An ambiguity related to the cyclic or acyclic flow of information between Canada and Australia is uncovered. We condition our analysis on the assumption that information flow is acyclic. The empirical results show that Canada and the U.S. are leaders in the pricing of wheat in these markets. The U.S. has a significant effect on three markets excluding Canada. Copyright Blackwell Publishing, Inc. 2003

A comparison of multivariate forecasting procedures for economic time series

In the recent decade several multivariate time-series methods have become available for forecasting. As with univariate methods, choices must be made as to which methods to use in practice. This paper reports the results of out-of-sample forecasts for several well-known procedures. Three interesting sets of data are used, and the forecasts are made over a five-year period. The data and model specifications are available upon request, so that the statistics presented in this paper can be used as a basis of comparison for future research.

Forecasting Wheat Exports: Do Exchange Rates Matter?

A vector autoregression is fit to recent U.S. data on wheat prices, wheat export sales, wheat export shipments, and exchange rates. Forecast error decompositions and out-of-sample forecasts indicate that exchange rates have little influence on wheat sales and shipments.

A MONTE CARLO STUDY ON THE SELECTION OF COINTEGRATING RANK USING INFORMATION CRITERIA

We conduct Monte Carlo simulations to evaluate the use of information criteria (Akaike information criterion [AIC] and Schwarz information criterion [SC]) as an alternative to various probability-based tests for determining cointegrating rank in multivariate analysis. First, information criteria are used to determine cointegrating rank given the lag order in a levels vector autoregression. Second, information criteria are used to determine the lag order and cointegrating rank simultaneously. Results show that AIC has an advantage over trace tests for cointegrated or stationary processes in small samples. AIC does not perform well in large samples. The performance of SC is close to that of the trace test. SC shows better large sample results than AIC and the trace test, even if the series are close to nonstationary series or they contain large negative moving average components. We also find evidence that supports the joint estimation of lag order and cointegrating rank by the SC criterion. We conclude that information criteria can complement traditional parametric tests.We are grateful to Peter C.B. Phillips and an anonymous referee for their comments, which significantly improved the paper.

Financial crisis and African stock market integration

This article examines long-run relationships and short-run dynamic causal linkages among the five largest emerging African stock markets and the US market, with particular attention to the 1997–1998 global emerging market crisis. In general, interdependence between the African markets and the influence of the US on these markets was limited during 1996–2002. There is evidence that both long-run relationships and short-run causal linkages between these markets were substantially weakened after the crisis.