Discussion Paper
No. 2016-9 | February 24, 2016
Aviral K. Tiwari, Arif B. Dar, Niyati Bhanja and Rangan Gupta
A Historical Analysis of the US Stock Price Index Using Empirical Mode Decomposition over 1791–2015

Abstract

In this paper, the dynamics of Standard and Poor's 500 (S&P 500) stock price index is analysed within a time-frequency framework over a monthly period 1791:08–2015:05. Using the Empirical Mode Decomposition technique, the S&P 500 stock price index is divided into different frequencies known as intrinsic mode functions (IMFs) and one residual. The IMFs and the residual are then reconstructed into high frequency, low frequency and trend components using the hierarchical clustering method. Using different measures, it is shown that the low frequency and trend components of stock prices are relatively important drivers of the S&P 500 index. These results are also robust across various subsamples identified based on structural break tests. Therefore, US stock prices have been driven mostly by fundamental laws rooted in economic growth and long-term returns on investment.

Data Set

JEL Classification:

C22, G10

Links

Cite As

[Please cite the corresponding journal article] Aviral K. Tiwari, Arif B. Dar, Niyati Bhanja, and Rangan Gupta (2016). A Historical Analysis of the US Stock Price Index Using Empirical Mode Decomposition over 1791–2015. Economics Discussion Papers, No 2016-9, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2016-9


Comments and Questions



Anonymous - Referee Report 1
March 01, 2016 - 11:45
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Arif Billah Dar - Reply to Refere Report 1
March 14, 2016 - 11:05
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Anonymous - Referee Report 2
March 02, 2016 - 08:07
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Arif Billah Dar - Reply to Referee Report 2
March 14, 2016 - 11:06
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Anonymous - Invited Reader Comment
March 03, 2016 - 08:03
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