Open AccessApplication of Vector Error Correction Model (VECM) and Impulse Response Function for Daily Stock Prices
Author(s) -
Slamet Heri Winarno,
Muhammad Usman,
Warsono,
Dian Kurniasari,
Widiarti
Publication year - 2021
Publication title -
journal of physics. conference series
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.21
H-Index - 85
eISSN - 1742-6596
pISSN - 1742-6588
DOI - 10.1088/1742-6596/1751/1/012016
Subject(s) - error correction model , econometrics , impulse response , vector autoregression , cointegration , stock (firearms) , mathematics , economics , error detection and correction , standard deviation , stock market , statistics , algorithm , mathematical analysis , mechanical engineering , paleontology , horse , engineering , biology
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.