The effect of stock market volatility on the US consumer expenditure Essay
The effect of stock market volatility on the US consumer expenditure, 488 words essay example
Choudhry, T. (2003) investigated the effect of stock market volatility (uncertainty) on the US consumer expenditure. The co-integration results indicate that there is a long run relationship between the consumption expenditure and it determinants including the stock market volatility.
2.5.2 Auto Regression Distribution Lag (ARDL)
It would be better to employed ARDL bounds testing approach if the results for unit root test are stationary at different order of integrations. According to Pesaran et al (2001), there are three advantages in ARDL approach. First, the short-run and long-run relationship can be evaluated simultaneously. Second, it can be employed even though the variables have different integration order. Third, it can be used even though small sample of the observations.
Bekhet H.I & Matar A (2013) used bound testing approach to test cointegration among stock market price index (SPI), and the macroeconomic variables in Jordan. Then the results depict the existence of long run association between the SPI and the macroeconomic variables.
Khandelwal, V. (2014) studied the impact of energy consumption (EC), gross domestic product (GDP) and fiscal deficit (FD) on public health expenditure (PHE) in India by using an ARDL Bounds Testing Approach. The results reveal the existence of long run causal relationship between GDP, FD & EC and PHE while in short-run, it was only GDP seen significant causal relationship with PHE.
The paper written by Adom P.K. et al (2012) discussed on the modelling aggregate domestic electricity demand in Ghana using ARDL bounds cointegration approach. They investigate the factors responsible for the historical growth trends in aggregate domestic electricity demand.
2.5.3 Granger Causality
Granger causality would be applied if there is any co-integration relationship between the variables in study. Risso, W. A., et al (2013) study on long run relationship between economic growth and income inequality by using Granger Causality analysis. The empirical result for Granger Causality analysis shows that unidirectional causality runs from per capita GDP to the Gini Index.
Nasir N. M. et al (2011) investigate the factors that determine stock market return in Malaysia (i.e. Gross domestic product, GDP Consumer price index, CPI base lending rate, BLR and exchange rate, EXCR) by using quarterly data. The results of Granger causality analysis show that GDP and CPI have unidirectional causality to KLCI. The CPI, KLCI and EXCR are unidirectional causality towards BLR. However, it shows that EXCR was bidirectional causality to KLCI.
Mun H.W. et al (2008) explore the causal relationship between the stock market and the economic activity in Malaysia using yearly data from 1997 until 2006. The stock market is Granger caused to the economic activity with no reverse causality observed.
Chu P.K (2011) studied on the relationship between macroeconomic variables and the net asset values (NAV) of equity funds. The variables used are HIBOR, HIS, CPI, M2 and NAV. The study was done by using Granger causality and Error Correction Model (ECM) analysis. The result of Granger shows NAV granger caused by HIS, CPI and M2 but only HIBOR not Granger caused to NAV.