Abstract
In recent years a large literature has emerged considering the relationship between financial and macroeconomic variables. The present article extends this research via consideration of threshold adjustment in the relationship between stock prices and economic activity in the UK. The results obtained show that use of momentum threshold autoregressive cointegration testing uncovers previously undetected asymmetry in the long-run relationship between the stock market and economic activity.
Notes
1 This argument applies to the Johansen (1988) procedure which is also an implicitly symmetric method.
2 In the interests of brevity the results of these tests are not presented here. However, they are available from the author upon request.
3 As lags proved insignificant, all cointegration tests were performed in nonaugmented form. The results of fifth order LM tests show an absence of serial correlation.