Taufiq Choudhry

Stochastic Trends in Stock Prices: Evidence from Latin American Markets

Abstract This paper investigates the long-run relationship between stock indices from six Latin American markets and the United States. The empirical investigation is conducted using weekly data from January 1989 to December 1993, unit root tests, cointegration tests, and error-correction models. Results from the unit root tests provide evidence of a stochastic trend in all indices. Results from the cointegration tests indicate the presence of a long-run relationship between the six Latin American indices (with and without the United States index). Error-correction results indicate significant causality among the stated indices.

Stock market volatility and the crash of 1987: evidence from six emerging markets

Abstract This paper studies volatility, risk premia and the persistence of volatility in six emerging stock markets before and after the 1987 stock market crash. The empirical investigation is conducted by means of the GARCH in the mean model (GARCH-M) and monthly data from Argentina, Greece, India, Mexico, Thailand, and Zimbabwe between January of 1976 and August of 1994. Results indicate changes in the ARCH parameter, risk premia and persistence of volatility before and after the 1987 crash. But these noted changes are not uniform and depend upon the individual markets. Factors other than the 1987 crash may also be responsible for the changes.

Real stock prices and the long-run money demand function: evidence from Canada and the USA

Abstract This paper investigates the relationship between stock prices and the long-run money demand function in Canada and the USA during the post WWII period (1955–1989). The empirical investigation is conducted by means of the Johansen method of cointegration and the error correction modelling strategy. Results show that stock prices play a significant role in the determination of stationary long-run real M1 and real M2 demand functions in both countries. The direction and magnitude of the role of stock prices depends upon the definition of the money and the country. Error correction results provide evidence of causality between the real money stock and the determinants of the money demand (including real stock prices).

Stochastic trends and stock prices: an international inquiry

Several different tests are applied to check for the stochastic structure of individual stock indices in the United States, the United Kingdom, Canada, France, Japan, Italy and Germany. Using a log of monthly series (1953–89), results obtained indicate that all stock indices tested contain a stochastic trend (unit root). So it appears that shocks to the stock prices in the above countries are permanent rather than temporary. Presence of permanent shocks suggest that post World War II stock prices may not be predictable in the long run. The Johansen method of cointegration test is applied to check for common stochastic trends in a system of these stock indices. The cointegration test results do not support the presence of common stochastic trends among these stock indices. Thus, all tests results provide support for the efficient market hypothesis.

Purchasing Power Parity in High-Inflation Eastern European Countries: Evidence from Fractional and Harris-Inder Cointegration Tests

This paper investigates the Purchasing Power Parity (PPP) between the United States and four high inflation Eastern European countries using fractional and Harris-Inder cointegration test methods. The four countries are Poland, Romania, Russia and Slovenia. The results provide evidence of (relative) PPP using only the Russian and the Slovenian data, and very little evidence of strict (absolute) PPP is also found. Some support for relative PPP is also found among the four European countries. Results in this paper show that countries with large differences in the price levels may show support for PPP even during short periods of time.

Another visit to the Cagan model of money demand: the latest Russian experience

Abstract This paper investigates empirically the Cagan style money demand function for Russia during the recent hyperinflation era, 1992–1994. Using the Johansen multivariate cointegration test, results indicate that rate of change of exchange rate (currency depreciation) is required in the demand function for real M2 and real currency in order to obtain a stationary long-run relationship. Error correction model results show that there exists a bidirectional causality between real money balances and determinants of real money demand, including currency depreciation. Exchange rate sensitivity of the demand for money indicates currency substitution.

The Monetary Model of Exchange Rates: Evidence from the Canadian Float of the 1950s

Abstract This paper applies the Johansen cointegration technique to examine the validity of the monetary model of exchange rate determination as an explanation of the Canadian dollar–United States dollar relationship over the period of the Canadian float 1950–62. A single cointegrating vector is identified whose coefficients conform in broad terms to the restrictions implied by the monetary model, thus lending support to the interpretation of the model as describing a long-run equilibrium relationship. This support is reinforced by the results derived from the associated error-correction model, which identify a clear short-run tendency for the exchange rate to revert to the equilibrium value defined by the estimated long-run model.

High inflation rates and the long-run money demand function: Evidence from cointegration tests

Abstract This paper attempts to determine whether there exists a stationary long-run money demand function in Argentina, Israel, and Mexico. Tests based on the Johansen method of cointegration reveal strong support for a stationary money demand function in the long run in all three countries. This result only holds when the annualized rate of change of the exchange rate (currency depreciation) is included in the money demand function.

Long-run money demand function in Argentina during 1935–1962: evidence from cointegration and error correction models

This paper provides a study of Argentinas money demand function during 1935–62 and 1946–62. These priods not only involved several important changes in Argentinas economy and banking system but also included high and volatile inflation. Using cointegration tests and error correction moderlling, results shows that even in periods of large variability there exists a stationary long-run demand function for real M1 and real M2 in Argentina. Error Correction models show that there is biddirectional causality between real money stock (M1 and M2) and the rate of inflation in both periods. Real income is found to be exogenous in all relationships. Thus results presented in this paper provide merit to Cagans form of money demand function during high inflation periods.

Integrated-GARCH and non-stationary variances: Evidence from European stock markets during the 1920s and 1930s

Abstract This paper provides a study of the persistence of stock return volatility in five European markets during the 1920s and 1930s. The empirical investigation is conducted using the Integrated-GARCH model. Results show that for the bulk of the series shocks to volatility are permanent, implying a significant impact of volatility on stock prices.