Speed of adjustment in cointegrated systems

Speed of adjustment in cointegrated systems

This paper discusses summary measures for the speed of adjustment in possibly cointegrated Vector Autoregressive Processes (VAR). In particular we propose long-run half-lives, based on interim and total multipliers. We discuss their relation with Granger-noncausality and other types of half-life, which are shown to convey different information, except in the univariate AR(1) case. We present li...

Short Run Dynamics in Cointegrated Systems

Opaque Information, Deviation from Target Leverage and Speed of Adjustment

Information opacity leads to information asymmetry. In this situation, in providing their own financial needs, firms face limitations and inevitably provide their financial needs from the debt market by signalling private information to it. In addition, information opacity affects the leverage adjustment speed. This research investigates the effect of information opacity on deviation from targe...

The estimation uncertainty of permanent-transitory decompositions in cointegrated systems

The topic of this paper is the estimation uncertainty of the Stock-Watson and Gonzalo-Granger permanent-transitory decompositions in the framework of the cointegrated vector-autoregression. Specifically, we suggest an approach to construct the confidence interval of the transitory component in a given period (e.g. the latest observation) by conditioning on the observed data in that period. To c...

Overreaction & Under reaction: Evaluating performance and Speed of Adjustment Investment Strategies in Tehran Stock Exchange (TSE)

In this research, overreaction and underreaction have been studied by assessing profitability and excess returns of investment strategies and evaluating price adjustment speed in short and long terms. The results showed that the momentum investment strategies had higher annual returns in comparison to contrarian strategies in all short and long periods which led to confirmation of underreaction...