Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/89110
Authors: 
Velinov, Anton
Year of Publication: 
2013
Series/Report no.: 
DIW Discussion Papers 1350
Abstract: 
Structural identification schemes are of essential importance to vector autoregressive (VAR) analysis. This paper tests a commonly used structural parameter identification scheme to assess whether it can properly capture fundamental and non-fundamental shocks to stock prices. In particular, five related structural models, which are widely used in the literature on assessing stock price determinants are considered. They are either specified in vector error correction (VEC) or in VAR form. Restrictions on the long-run effects matrix are used to identify the structural parameters. These identifying restrictions are tested by means of a Markov switching in heteroskedasticity model. It is found that for two of the five models considered, the long-run identification scheme appropriately classifies shocks as being either fundamental or non-fundamental. A series of robustness tests are performed, which largely confirm the initial findings.
Subjects: 
Markov switching model
vector autoregression
vector error correction
stock prices
JEL: 
C32
C35
Document Type: 
Working Paper

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