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Long-run Cointegration and Market Equilibrium in Large Cap Stocks

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  • Huaibing Yu

Abstract

Although stock returns are thought to be stationary and showing mean-reverting behaviors, stock price levels don’t have to follow this manner. This paper finds that the general market condition has a commanding power on stock price level movements which are non-stationary individually but with statistically significant long-run cointegration relationships within sub-groups of large cap stocks in the U.S. market. Moreover, the vector error-correction models provide significant evidences that the short-run stock price level movements can be very volatile and show a reluctant behavior of returning to the long-run equilibrium. However, the estimated and the predicted cointegration parameters provide statistical evidences that the long-run equilibrium relationships are solid and stationary over time.JEL classification numbers: G12; G14; G17Keywords: Cointegration, Market Equilibrium, Stock Price Level

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  • Huaibing Yu, 2019. "Long-run Cointegration and Market Equilibrium in Large Cap Stocks," Journal of Finance and Investment Analysis, SCIENPRESS Ltd, vol. 8(1), pages 1-2.
    • Handle: RePEc:spt:fininv:v:8:y:2019:i:1:f:8_1_2
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    References listed on IDEAS

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    Cited by:

    1. Huaibing Yu, 2019. "An Econometric Analysis on Influential Power Across Global Stock Markets," Journal of Finance and Investment Analysis, SCIENPRESS Ltd, vol. 8(3), pages 1-1.

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    More about this item

    Keywords

    cointegration; market equilibrium; stock price level;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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