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The Predictability of the Socially Responsible Investment Index: A New TMDCC Approach

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  • Yen-Hsien Lee

Abstract

This study extends the threshold error-correction model of Enders and Siklos (2001) to the momentum threshold error-correction model with the dynamic conditional correlation GARCH model of Engle (2002), in order to investigate the asymmetric cointegration and causal relationships between the FTSE4GOOD index and the U.S. stock index. The results reveal that the responsible investment index and stock indexes adjust asymmetrically back to the long-run equilibrium relationship. Consequently, the stock index has a dominant impact on the responsible investment index and such a finding could prove valuable to investors when forecasting the responsible investment index.

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  • Yen-Hsien Lee, 2013. "The Predictability of the Socially Responsible Investment Index: A New TMDCC Approach," The Review of Finance and Banking, Academia de Studii Economice din Bucuresti, Romania / Facultatea de Finante, Asigurari, Banci si Burse de Valori / Catedra de Finante, vol. 5(1), pages 027-034, June.
    • Handle: RePEc:rfb:journl:v:05:y:2013:i:1:p:027-034
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    1. Mehmet Caner & Bruce E. Hansen, 1998. "Threshold Autoregressions with a Near Unit Root," Working Papers 9821, Department of Economics, Bilkent University.
    2. Enders, Walter & Siklos, Pierre L, 2001. "Cointegration and Threshold Adjustment," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(2), pages 166-176, April.
    3. Hussein, Khaled A., 2004. "Ethical Investment: Empirical Evidence From Ftse Islamic Index," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 12, pages 22-40.
    4. Hoti, Suhejla & McAleer, Michael & Pauwels, Laurent L., 2008. "Multivariate volatility in environmental finance," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 78(2), pages 189-199.
    5. Suhejla Hoti & Michael McAleer & Laurent L. Pauwels, 2007. "Measuring Risk In Environmental Finance," Journal of Economic Surveys, Wiley Blackwell, vol. 21(5), pages 970-998, December.
    6. Enders, Walter & Granger, Clive W J, 1998. "Unit-Root Tests and Asymmetric Adjustment with an Example Using the Term Structure of Interest Rates," Journal of Business & Economic Statistics, American Statistical Association, vol. 16(3), pages 304-311, July.
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