Are mortgage lenders guilty of the housing bubble? A UK perspective

Existing theoretical models of house prices and credit rely on continuous rationality of consumers, an assumption that has been frequently questioned in recent years. Meanwhile, empirical investigations of the relationship between prices and credit are often based on national-level data, which is then tested for structural breaks and asymmetric responses, usually with subsamples. Earlier author argues that local markets are structurally different from one another and so the coefficients of any estimated housing market model should vary from region to region. We investigate differences in the price–credit relationship for 12 regions of the UK. Markov-switching is introduced to capture asymmetric market behaviours and turning points. Results show that credit abundance had a large impact on house prices in Greater London and nearby regions alongside a strong positive feedback effect from past house price movements. This impact is even larger in Greater London and the South East of England when house prices are falling, which are the only instances where the credit effect is more prominent than the positive feedback effect. A strong positive feedback effect from past lending activity is also present in the loan dynamics. Furthermore, bubble probabilities extracted using a discrete Kalman filter neatly capture market turning points.

Regulatory Change v's volume of trade effects in HSIF and HSI volatility

In an earlier paper we adopted a BEKK-GARCH framework and employed a systematic approach to examine structural breaks in the HSIF and HSI volatility. Switching dummy variables were included and tested in the variance equations to check for any structural changes in the autoregressive volatility structure due to the events that have taken place in the Hong Kong market. A Bi-variate GARCH model with 3 switching points was found to be superior as it captured the potential structural changes in return volatilities. Abolishment of the uptick rule, increase of initial margins for the HSIF and electronic trading of HSIF were found to have significant impact on the volatility structure of HSIF and HSI. In this paper we include measures of daily trading volume from both markets in the estimation. Likelihood ratio tests indicate the switching dummy variables become insignificant and the GARCH effects diminish but remain significant.

Mean reversion in stock prices: new evidence from panel unit root tests

Purpose – There are several studies that investigate evidence for mean reversion in stock prices. However, there is no consensus as to whether stock prices are mean reverting or random walk (unit root) processes. The goal of this paper is to re-examine mean reversion in stock prices.
Design/methodology/approach – The authors use five different panel unit root tests, namely the Im, Pesaran and Shin t-bar test statistic, the Levin and Lin test, the Im, Lee, and Tieslau Lagrangian multiplier test statistic, the seemingly unrelated regression test, and the multivariate augmented Dickey Fuller test advocated by Taylor and Sarno.
Findings – The main finding is that there is no mean reversion of stock prices, consistent with the efficient market hypothesis.
Research limitations/implications – One issue not considered by this study is the role of structural breaks. It may be the case that the efficient market hypothesis is contingent on structural breaks in stock prices. Future studies should model structural breaks.
Practical implications – The findings have implications for econometric modelling, in particular forecasting.
Originality/value – This paper adds to the scarce literature on the mean reverting property of stock prices based on panel data; thus, it should be useful for researchers.

Are oil shocks permanent or temporary? panel data evidence from crude oil and NGL production in 60 countries

This paper examines the unit root properties of crude oil production for 60 countries employing a range of panel data unit root tests for the period 1971 to 2003. The study first employs a number of panel data tests that do not accommodate structural breaks and then proceeds to apply the Lagrange Multiplier (LM) panel unit root test with one structural break. The results of the panel data tests without a structural break are inconclusive with at best mixed support for joint stationarity. The findings from the LM panel unit root test with a structural break, however, are conclusive, suggesting that for a world panel and smaller regional-based panels, crude oil and NGL production are jointly stationary.

Are shocks to real effective exchange rates permanent or transitory? evidence from Pacific Island countries

In this article, we consider the stability of the real effective exchange rates for four Pacific Island countries using the Lee and Strazicich (2003a, b) unit root test, which allows one to incorporate at most two structural breaks in the data series. Our main finding is that for Papua New Guinea and Samoa, exchange rates are stable, implying that shocks will have a transitory effect on real effective exchange rates, while for Fiji and the Solomon Islands we find exchange rates to be unstable, implying that shocks will have a permanent effect on real effective exchange rates.

Evidence of panel stationarity from Chinese provincial and regional income

The aim of this paper is to examine whether Chinese provincial and regional real GDP and per capita real GDP are panel stationary for the period 1952–2003. We allow for multiple structural breaks based on a technique developed by Carrion-i-Silvestre et al. [Carrion-i-Silvestre, J. L., Barrio-Castro, T, D., & Lopez-Bazo, E. (2005). Breaking the panels: An application to the GDP per capita. Econometrics Journal, 8, 159–175]. Allowing for at most five structural breaks, we find that for 67% of the provinces, per capita real GDP is stationary; while we only find stationarity of real GDP for 17% of the provinces. However, when we extend the analysis to panel data models, we find statistically strong evidence of panel stationarity of Chinese provincial and regional income.

Modelling regulatory change V's volume of trading effects in HSIF and HSI volatility

In an earlier paper, we adopted a bi-variate BEKK–GARCH framework and employed a systematic approach to examine structural breaks in the Hang Seng Index and Index Futures market volatility. Switching dummy variables were included and tested in the variance equations to check for any structural changes in the autoregressive volatility structure due to the events that have taken place in the Hong Kong market surrounding the Asian markets crisis. In this paper, we include measures of daily trading volume from both markets in the estimation. Likelihood ratio tests indicate the switching dummy variables become insignificant and the GARCH effects diminish but remain significant. There is some evidence that the Sequential Arrival of Information Model (SIM) provides a platform to explain these market induced effects when volume of trade is accounted for.

Are bilateral real exchange rates stationary? Evidence from Lagrange multiplier unit root tests for India

The paper examines the stationarity of India’s real exchange rate vis-a` -vis 16 of its major trading partner countries for the period 1960–2000. Application of the conventional ADF unit root test, the Lagrange multiplier (LM) unit root test with one structural break, and the LM unit root test with two structural breaks provides evidence that India’s exchange rate vis-a` -vis 15 out of 16 countries is stationary, implying support for purchasing power parity.

Is Asian per capita GDP panel stationary?

The goal of this paper is to examine whether per capita GDP for 15 Asian countries is panel stationary. We apply a panel test for stationarity that allows for multiple structural breaks developed by Carrion-i-Silvestre et al. (Econ J 8: 159–179, 2005). Our main findings are: (1) when we apply conventional tests, such as the ADF and KPSS univariate tests without structural breaks, we find little evidence for stationarity; (2) when we apply the KPSS univariate test with multiple structural breaks, we find evidence of stationarity for 10 out of 15 countries; and (3) when we apply the KPSS panel test with multiple structural breaks, we find overwhelming evidence of panel stationarity of per capita real GDP for different panels of Asian countries.

Are Australia's tourism markets converging?

In this paper we make an important contribution towards understanding Australia's tourism industry by examining whether or not Australia's tourism markets are converging. We define convergence as the reduction in tourist arrivals' differential, which is calculated as the difference between total visitor arrivals to a country and visitor arrivals from a particular tourist source market. We analyze Australia's thirteen major tourist source markets using monthly data over the period January 1991 to September 2003. To test for convergence, we use the univariate and panel Lagrange multiplier (LM) tests. Our main finding is that when we allow for two structural breaks in the data series, both univariate and panel LM tests provide strong evidence for convergence of Australia's tourism markets. This implies that policies aimed at attracting visitor arrivals from any one of Australia's thirteen tourist source markets will boost the volume of tourists coming into the country.

Mean reversion versus random walk in G7 stock prices evidence from multiple trend break unit root tests

This paper provides evidence on the random walk hypothesis in G7 stock price indices using unit root tests which allow for one and two structural breaks in the trend. Of the seven countries we find, at best, evidence of mean reversion in the stock price index of Japan. Thus, overall, our results support the random walk hypothesis. We also consider the implications of the identified structural breaks for movement in stock prices over time. Our main conclusion from this exercise is that the second break in stock prices has had a detrimental effect on movements in stock prices in the G7 countries.

Are G7 per capita real GDP levels non-stationary, 1870–2001?

In this paper we examine whether or not G7 per capita income can be classified as a stationary process using data for over a century. The unit root null hypothesis is tested using the recently developed Lagrange multiplier test which allows for at most two structural breaks. We are able to reject the unit root null hypothesis for all the countries at the 5 percent level or better, except for Italy and Germany.

Multiple regime shifts in concurring and dissenting opinions on the U.S. Supreme Court

In a previous issue of this journal, Smyth and Narayan (2004) examine structural change in the level of consensus on the High Court of Australia. In this article we adopt a similar strategy to that employed in Smyth and Narayan (2004) to estimate both the number and location of structural breaks in concurring and dissenting opinions on the U.S. Supreme Court. Although it has commonly been believed that there has been one regime shift on the U.S. Supreme Court, corresponding to the breakdown in the consensual norm in the 1930s or 1940s, we find that there have been three breaks in consensus. We find that two of the three breaks in dissenting opinions correspond closely to the beginning of the terms of Taney and Stone as Chief Justice, with the third occurring in the middle of Chase's term. We find that two of the three breaks in concurring opinions correspond closely to the beginning of the terms of Taney and Hughes and that the third break in concurring opinions occurs in the middle of the Warren Court.

Introduction of electronic trading in index futures : volatility and volume effects

There is continuing debate in the US over full introduction of electronic trading in those index futures contracts that are still traded at the CME via open outcry. Since the late 1990s major international exchanges trading index futures contracts have converted to full electronic trading. Recent empirical studies have focused on effects on bid/ask spreads and related price volatility following these changes. We take a different approach and investigate and test for structural change in conditional volatility and volume effects following the shift to electronic trading in the Australian Share Price Index futures contract. Multiple Switching point GARCH models are employed with the data sampled at 5, 15 and 30-minute intervals from transaction records supplied by the Sydney Futures Exchange. There is significant evidence of structural changes in both the persistence of volatility shocks and simultaneous volume effects following the change to screen trading in this futures market.

The dynamic relationship between real exchange rates, real interest rates and foreign exchange reserves : empirical evidence from China

This article examines the long-run and short-run relationship between China's real exchange rate, foreign exchange reserves and the real interest rate differential between China and the United States using monthly data from 1980 to 2002. Extensive testing for unit roots allowing for up to two structural breaks in the trend indicates that the variables are not integrated of the same order. Thus, the bounds testing approach to cointegration is used, which finds that there is a single long-run relationship between the three variables. In the long run the real exchange rate has a statistically significant positive effect on foreign exchange reserves. The coefficient on the real interest rate differential is also positive, but is statistically insignificant. In the short-run it is found that the relationship between the real exchange rate, real interest rate differential and foreign exchange reserves is non-monotonic.