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This paper aims to understand the effect of a change in Economic Policy Uncertainty (EPU) of India and the USA on investors' sentiment in the Indian context, consisting of Sensex returns and volatility index (Vix).

The authors employ bounds testing approach to cointegration to capture the short-and long-run effects of EPU on investors' sentiment, along with impulse response functions and variance decompositions to check the effect of a shock on Sensex and Vix.

The study concludes the existence of a cointegrating relationship for both models, that is, Vix and Sensex. In the long-run, changes in EPU_India affect Vix and Sensex positively and negatively, respectively. On the other hand, EPU_USA affects Vix and Sensex positively. Furthermore, Gregory and Hansen (1996) cointegration with endogenous structural break reveals a long-run cointegrating relationship for both models.

The effect of EPUs on investors' sentiment reveals that when there is an uncertain event that adversely affects the stock prices, investors should not make haste to take a decision as the impact on stock prices perturbation might be temporary. Therefore, one should persevere for the dip in prices to hit the desired target.

Various studies look at the effect of cross-country EPU on the home country, However, there is no such study in the Indian context. The present study examines the impact of India's EPU on investors' sentiments after controlling the USA's EPU, one of India's largest trading partners and a key determinant of global economic policy.

This study reexamines the sustainability of fiscal policy in Sweden.

To test the sustainability of fiscal policy, two approaches are used; the methodology of Kejriwal and Perron (2010), testing for multiple structural changes in a cointegrated regression model and time-varying cointegration test of Bierens and Martins (2010), and Martins (2015).

Using the first approach of testing for multiple structural changes in a cointegrated regression model, the results indicate that government spending and revenue are cointegrated with two breaks. An estimation of a two-break long-run model shows that the slope coefficient increases from 0.678 to 0.892 from the first to the second regime, implying that fiscal deficits were weakly sustainable in the first two regimes, from 1800 to 1943, and from 1944 to 1974. Further, results from time-varying cointegration test indicate that cointegration between spending and revenue in Sweden is time-varying. Fiscal deficits were found to be unsustainable for the periods 1801–1811, 1831–1838, 1853–1860 , 1872–1882, 1897–1902, 1929–1940 and 1976–1982 and weakly sustainable over the rest of the study period.

A number of implications arise from this study: (1) Accounting for breaks in cointegration analysis and in the estimation of the level relationship between spending and revenue is very important because ignoring breaks may lead to an overestimated slope coefficient and hence a bias on the magnitude of fiscal deficit sustainability. (2) In testing for cointegration between spending and revenue, assuming a constant cointegrating slope when it is actually time-varying can also be misleading because deficits can be sustainable for a period of time and unsustainable over another period.

The contribution of this study is three-fold; first, the study uses a long series of annual data spanning over a period of two centuries, from 1800 to 2011. Second, because of the importance of structural change in economics, to examine the existence of a level relationship between spending and revenue, the study uses the methodology of Kejriwal and Perron (2010) to test for multiple structural changes in a cointegrated regression model, as well as time-varying cointegration of Bierens and Martins (2010) and Martins (2015).

The purpose of this paper is to investigate the long-run equilibrium relationship between developed, emerging and frontier markets of the Asia-Pacific region during January 2000 to June 2016.

Zivot and Andrews’ unit root test is used to examine the existence of unit root in index series in the presence of a structural break. Gregory and Hansen’s test of cointegration is employed to examine the stable long-run relationship between the indices under study.

The results suggest that the emerging markets of China and Thailand and the frontier markets of Sri Lanka and Pakistan are fairly segmented from most of the markets in the Asia-Pacific region. Hence, these markets provide good diversification opportunities to global investors. Bidirectional cointegration analysis indicates that emerging and frontier markets influence developed markets. Hence, it can be inferred that the de facto position that only bigger markets influence small markets no longer holds true in the current environment.

The findings of this study will provide valuable inputs to global investors for creating an optimal investment portfolio.

This study does a comprehensive examination of market integration in the Asia-Pacific region. It also contributes to the thin body of work done on frontier markets. Unlike past studies, this paper analyzes the bidirectional cointegration relationship to examine if the notion that only bigger markets influence smaller markets holds true or not. Finally, this study employs advanced techniques of unit root test and cointegration test that consider structural breaks in the models.

The purpose of this paper is to investigate the linkages between Indian stock markets with other Asian stock markets namely, Hong Kong, Indonesia, Japan, South Korea, Malaysia, Taiwan and China. Such a study is particularly important because if the level of integration among the markets is high, then investing in different markets will not generate long term gains from portfolio diversification or reduction in risk.

The paper applies unit root test in the presence of endogenous structural breaks that uses a Lagrange Multiplier (LM) test statistics and the Gregory and Hansen cointegration technique that allows for endogenous determined structural break in the relationship have been applied.

The results suggest that the Indian stock markets are not integrated with any of the Asian markets either individually or collectively, and conclude that Indian markets are not sensitive to the dynamics in these markets in the long run.

Since the level of integration has been studied keeping in mind the different economical phases like recession and boom, the study has incorporated the possibility of existence of structural breaks in the individual stock return series as well as in their relationship. The lack of evidence on interlinkage of Indian stock markets with other Asian markets suggests that the trend of Indian markets is not in sync with other markets, possibly due to difference in macroeconomic structure. Since the level of integration has been studied keeping in mind the different economical phases like recession and boom, the study has incorporated the possibility of existence of structural breaks in the individual stock return series as well as in their relationship. The lack of evidence on interlinkage of Indian stock markets with other Asian markets suggest that the trend of Indian markets is not in sync with other markets, possibly due to difference in macroeconomic structure.

This study reexamines fiscal deficit sustainability in South Africa.

The study applies three cointegration testing approaches, namely testing for multiple structural changes in a cointegrated regression model, time-varying cointegration test and asymmetric cointegration test.

The results point to the existence of a level relationship between government revenue and spending. In addition, the long-run equilibrium relationship between government revenue and spending in South Africa is found to be characterized by breaks. As such, assuming a constant cointegrating slope may be misleading. Results from time-varying cointegration and an estimation of a cointegrated two-break model indicate that cointegrating coefficient has been time-varying but has remained less than 1 for the entire study period, indicating that fiscal deficits have been weakly sustainable. This finding is also confirmed by the results from an estimated asymmetric error correction model.

In view of the findings, authorities should put in place policies to improve the fiscal budgetary stance and reinforce the sustainability of the fiscal deficits in South Africa. Among other things, South Africa could undertake reforms to state-owned companies to reduce their reliance on public funds, slow down the pace of the public sector wage growth and devise effective economic measures to boost long-term growth. In addition, tax compliance and other revenue collection measures should be enhanced for additional tax revenue.

The contribution of this study is twofold; first, the study uses a long series of annual data spanning over a century, from 1913 to 2020. Indeed, cointegration is better modeled using long spans of time series data. Second, to examine the existence of a level relationship between spending and revenue, the study uses cointegration tests which allow capturing time-variation in the cointegrating slope coefficient, and accounting for asymmetries in the relationship between government spending and revenue. It is important to allow for time-variation in the cointegrating slope coefficient, especially when it has been hardly treated in the empirical literature on fiscal deficit sustainability. Allowing for time-variation in the cointegrating slope coefficient helps us to analyze fiscal deficit sustainability by periods of time. Indeed, the degree of fiscal sustainability can change from one time period to another.

The purpose of this paper is to investigate the long-run effect of financial sector development, energy use and economic growth on carbon emissions for Turkey, in presence of possible regime shifts over a period of 1960-2013.

Along with the conventional unit root tests, Zivot-Andrews unit root test with structural break has been employed to check the stationarity of variables. The cointegrating relationship between variables is investigated by using the autoregressive distributed lag bounds test and Hatemi-J threshold cointegration test.

The results confirm a cointegrating relationship between the variables. The long-run relationship between the variables has gone through two endogenous structural breaks in 1976 and 1986. Development of financial sector improves environmental quality whereas energy use and economic growth degrade it. The results challenge the validity of environmental Kuznets curve hypothesis in Turkish economy.

The study uses domestic credit to private sector as a proxy for development of financial sector. The model can be improved by constructing an index of financial development instead of using a single determinant as a proxy for financial development.

The study may pave the way for policy makers to capture important environmental pollutants in better way and develop effective and efficient energy and economic policies. This may make significant contribution to curbing CO₂ emissions while sustaining economic growth.

This is the only study to examine long-run impact of financial sector development on carbon emissions, using the threshold cointegration approach. Hence, the study is a gentle request to reduce the possible omitted variable econometric estimation bias and fill the gap in the existing literature.

The purpose of this paper is to examine the long‐run sustainability of trade deficits for the ASEAN‐five economies, viz., Indonesia, Malaysia, the Philippines, Myanmar and Thailand, in the presence of structural breaks.

It utilizes the Saikkonen and Lütkepohl cointegration procedure, allowing for structural breaks in the series. To determine endogenous structural breaks, the Lanne et al. unit root test is applied.

The study confirms a long run relation between exports and imports for Indonesia, Myanmar and Thailand; and finds sustainable long‐run trade deficit only for Myanmar.

The results suggest that macroeconomic policies in Myanmar have been sustainable and effective in leading exports and imports to the long‐run steady state equilibrium. However, the paper did not find cointegration between exports and imports for Malaysia and the Philippines. This result suggests that macroeconomic policies have failed to establish; a long‐run equilibrium; and sustainable external (import and export) balance. For Indonesia and Thailand while the macroeconomic policies may give the appearance of being effective in establishing a long‐run equilibrium, the relation may not be sustainable, however.

The paper finds that despite the presence of structural breaks, Myanmar represents the only economy among the ASEAN‐five that is on a long‐run sustainable trade deficit. To the author's knowledge this the only work that examines sustainability of trade deficits using time series techniques that incorporates structural breaks in the context of ASEAN‐five with implication for trade openness policy. From that perspective the work can be seen as an original contribution to the literature.

This paper examines the long‐term relationship between saving and investment as a criterion for assessing international capital mobility for the case of Saudi Arabia, the largest economy among the Middle Eastern and Arab nations.

The approach is modeled on Feldstein and Horioka covering the period 1963‐2007 for Saudi Arabia. We use the bounds testing approach and the Gregory and Hansen cointegration methods to test for the long‐run relationship between saving and investment. Additionally, before testing for this relationship, we conduct unit root tests, including the additive outlier model developed by Perron with an endogenously determined structural break.

The study finds no evidence of a long‐run relationship between saving and investment and therefore concludes that capital is highly mobile in Saudi Arabia. This finding is plausible given the economic and financial reforms which have occurred in Saudi Arabia along with increased capital inflows into the country in the last few decades.

Of the limited studies so far on developing countries, none has considered the capital mobility issue for an oil‐dependent country.

This chapter aims to determine whether diversification benefits accrue from adding emerging market hedge funds (EMHFs) to an emerging market bond/equity portfolio, and subsequently whether the type of exposure hedge funds provide is justified by their fees. We use multivariate cointegration analysis to show that the advantages of adding hedge funds to balanced portfolios are limited for the three regions of Asia, Eastern Europe, and Latin America, as well as for the entire global emerging market universe. In summary, we find that emerging market hedge funds are generally redundant for diversifying long-only emerging market investment portfolios with long-term investment horizons. This result also holds when we extend our sample by the global financial crisis in 2008 and 2009 and allow for structural breaks according to the Gregory-Hansen (1996) test. Hence, even during the global financial crisis in 2008 and 2009, when risk diversification was most needed, long-term comovements between hedge funds and traditional assets is, with the exception of the Eastern European region, not disrupted. Because EMHF returns are heavily influenced by the emerging market equity and bond markets, we conclude that the “alpha fees” charged by EMHFs may not always be appropriate for the three main regions under consideration. This also holds, however, to a lesser extent, for a global diversification among hedge funds and traditional assets in emerging markets.