Has the Structural Break Slowed Down Growth Rates of Stock Markets?

SWP 2011/10

36 Pages Posted: 7 May 2012

See all articles by Paresh Kumar Narayan

Paresh Kumar Narayan

Deakin University - School of Accounting, Economics and Finance

Seema Narayan

affiliation not provided to SSRN

Sagarika Mishra

affiliation not provided to SSRN

Date Written: 2011

Abstract

In this paper, we use the common structural break test suggested by Bai et al. (1998) to test for a common structural break in the stock prices of the US, the UK, and Japan. On the basis of the structural break, we divide each country‟s stock price series into sub-samples and investigate whether or not the structural break had slowed down the growth of stock markets. Our main findings are that when stock markets are modeled in a trivariate sense the common structural break turns out to be 1990:02, with the confidence interval including several episodes, such as the asset price bubble when housing prices and stock prices in Japan reached a peak in 1988/1989, the early 1990s recession in the UK, the business cycle peak of July 1990, the August 1990 Iraqi invasion of Kuwait and the March 1991 business cycle trough. Annual average growth rates suggest that the structural break has slowed down the growth rate of the US, UK and Japanese stock markets.

Keywords: Common Structural Break Test, Stock Markets

Suggested Citation

Narayan, Paresh Kumar and Narayan, Seema and Mishra, Sagarika, Has the Structural Break Slowed Down Growth Rates of Stock Markets? (2011). SWP 2011/10, Available at SSRN: https://ssrn.com/abstract=2052115 or http://dx.doi.org/10.2139/ssrn.2052115

Paresh Kumar Narayan (Contact Author)

Deakin University - School of Accounting, Economics and Finance ( email )

221 Burwood Highway
Burwood, Victoria 3215
Australia

Seema Narayan

affiliation not provided to SSRN ( email )

Sagarika Mishra

affiliation not provided to SSRN

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