Application of Vector Error Correction Model (VECM) and Impulse Response Function for Daily Stock Prices
Vector Error Correction Model is a cointegrated VAR model. This idea of Vector Error Correction Model (VECM), which consists of a VAR model of the order p - 1 on the differences of the variables, and an error-correction term derived from the known (estimated) cointegrating relationship. Intuitively,...
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| creator | Winarno, S. Usman, M. Warsono Kurniasari, D. Widiarti |
| description | Vector Error Correction Model is a cointegrated VAR model. This idea of Vector Error Correction Model (VECM), which consists of a VAR model of the order p - 1 on the differences of the variables, and an error-correction term derived from the known (estimated) cointegrating relationship. Intuitively, and using the stock market example, a VECM model establishes a short-term relationship between the stock prices, while correcting with the deviation from the long-term comovement of prices. An Impulse Response Function traces the incremental effect of a 1 unit (or one standard deviation) shock in one of the variables on the future values of the other endogenous variables. Impulse Response Functions trace the incremental effect of the marketing action reflected in the shock. The data used in this analysis are 4 (four) daily plantation stocks prices in Indonesia with time period of January to July in three years which are 2018, 2019, and 2020. The objective of this study is to determine the relationship among 4 (four) stocks prices with VECM and to know the behaviour of each stocks prices with Impulse Response. |
| doi_str_mv | 10.1088/1742-6596/1751/1/012016 |
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| subjects | Error correction Error correction & detection Granger Causality Impulse response Impulse Response Function Physics Response functions Stocks VAR VECM |
| title | Application of Vector Error Correction Model (VECM) and Impulse Response Function for Daily Stock Prices |
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