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Looking far in the past: Revisiting the growth-returns nexus
with non-parametric tests

Ekaterini Panopoulou, Nikitas Pittis and Sarantis Kalyvitis IIIS Discussion Paper No. 134

Abstract

In this paper we reexamine the linkages between output growth and real stock price changes for the G7 countries using a battery of non-parametric procedures to account for the impact of long-lagged observations. We find that correlation between growth and returns is detected at larger horizons than those typically employed in parametric studies. The major feedbacks emerge from stock price changes to growth within the first 6 to 12 months, but we show that significant feedbacks may last for up to two or three years. Our evidence also suggests that the correlation patterns differ substantially between the countries at hand when the sectoral share indices are considered. Keywords: real stock price changes, output growth, long-run covariance matrix.
JEL classification: C14, G10, O51.


Last updated 28 August 2014 by IIIS (Email).