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Empirical Economics
Article . 2021 . Peer-reviewed
License: Springer TDM
Data sources: Crossref
SSRN Electronic Journal
Article . 2020 . Peer-reviewed
Data sources: Crossref
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Extensions of the Pesaran, Shin and Smith (2001) Bounds Testing Procedure

Authors: Georgios Bertsatos; Plutarchos Sakellaris; Mike G. Tsionas;

Extensions of the Pesaran, Shin and Smith (2001) Bounds Testing Procedure

Abstract

We replicate the Pesaran, Shin and Smith (2001) bounds testing procedure (BTP), and extend it with 6 new cases, 4 of which involve a quadratic trend. We provide critical values for the BTP of the lagged regressors in levels under the framework of unrestricted error-correction models (UECMs) to account for degenerate cases of co-integration. Further, we extend the BTP with 11 cases for the quantile UECMs of Cho, Kim and Shin, and present critical values for inter-decile and interquartile BTPs for the unrestricted cases. We extend the Shin, Yu and Greenwood-Nimmo methodology to account for non-linear, or asymmetric, responses of the dependent variables to its covariates (NARDL) and for distributional, or location, asymmetry (QARDL of Cho, Kim and Shin; of the dependent variable. We call this quantile non-linear ARDL, or QNARDL. We provide codes that generate sample-specific critical values of the BTPs. We utilize these critical values in an empirical application of a dynamic equity valuation model for the S&P Global Index. We find that mis-specifying a non-linear relationship as linear produces misleading results and policy implications. There is strong evidence of: (i) trading activity based on fundamentals and (ii) the existence of a stable equilibrium relationship for the price-to-book (PB) ratio of the market index and its fundamentals. During periods of high PB relative to its fundamental values, convergence to equilibrium is faster than during periods of relatively low PB. There is also evidence of momentum trading, i.e. of traders that rely on positive feedback.

Country
United Kingdom
Keywords

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selected citations
These citations are derived from selected sources.
This is an alternative to the "Influence" indicator, which also reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Citations provided by BIP!
popularity
This indicator reflects the "current" impact/attention (the "hype") of an article in the research community at large, based on the underlying citation network.
BIP!Popularity provided by BIP!
influence
This indicator reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Influence provided by BIP!
impulse
This indicator reflects the initial momentum of an article directly after its publication, based on the underlying citation network.
BIP!Impulse provided by BIP!
15
Top 10%
Average
Top 10%
Green
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