Most authors apply the Granger causality-VECM (vector error correction model), and Toda–Yamamoto procedures to investigate the relationships among fossil fuel consumption, ${\mathrm{CO}}_2$ emissions, and economic growth, though they ignore the group joint effects and nonlinear behaviour among the variables. In order to circumvent the limitations and bridge the gap in the literature, this paper combines cointegration and linear and nonlinear Granger causality in multivariate settings to investigate the long-run equilibrium, short-run impact, and dynamic causality relationships among economic growth, ${\mathrm{CO}}_2$ emissions, and fossil fuel consumption in China from 1965–2016. Using the combination of the newly developed econometric techniques, we obtain many novel empirical findings that are useful for policy makers. For example, cointegration and causality analysis imply that increasing ${\mathrm{CO}}_2$ emissions not only leads to immediate economic growth, but also future economic growth, both linearly and nonlinearly. In addition, the findings from cointegration and causality analysis in multivariate settings do not support the argument that reducing ${\mathrm{CO}}_2$ emissions and/or fossil fuel consumption does not lead to a slowdown in economic growth in China. The novel empirical findings are useful for policy makers in relation to fossil fuel consumption, ${\mathrm{CO}}_2$ emissions, and economic growth. Using the novel findings, governments can make better decisions regarding energy conservation and emission reductions policies without undermining the pace of economic growth in the long run.

The multivariate nonlinear Granger causality developed by Bai et al. (2010) (Mathematics and Computers in simulation. 2010; 81: 5-17) plays an important role in detecting the dynamic interrelationships between two groups of variables. Following the idea of Hiemstra-Jones (HJ) test proposed by Hiemstra and Jones (1994) (Journal of Finance. 1994; 49(5): 1639-1664), they attempt to establish a central limit theorem (CLT) of their test statistic by applying the asymptotical property of multivariate U-statistic. However, Bai et al. (2016) (2016; arXiv: 1701.03992) revisit the HJ test and find that the test statistic given by HJ is NOT a function of U-statistics which implies that the CLT neither proposed by Hiemstra and Jones (1994) nor the one extended by Bai et al. (2010) is valid for statistical inference. In this paper, we re-estimate the probabilities and reestablish the CLT of the new test statistic. Numerical simulation shows that our new estimates are consistent and our new test performs decent size and power.

We employ bivariate and multivariate nonlinear causality tests to document causality from equity return dispersion to stock market volatility and excess returns, even after controlling for the state of the economy. Expansionary (contractionary) market states are associated with a low (high) level of equity return dispersion, indicating asymmetries in the relationship between return dispersion and economic conditions. Our findings indicate that both return dispersion and business conditions are valid joint forecasters of stock market volatility and excess returns and that return dispersion possesses incremental information regarding future stock return dynamics beyond that which can be explained by the state of the economy.

Unlike the existing literature, which primarily studies the impact of only monetary policy shocks on real estate investment trusts (REITs), this paper develops a change-point vector autoregressive (VAR) model and then analyzes, for the first time, regime-specific impact of demand, supply, monetary policy, and spread yield shocks, identified using sign-restrictions, on US REITs returns. The model first isolates four major macroeconomic regimes in the US since the 1970s and discloses important changes to the statistical properties of REITs returns and its responses to the identified shocks. A variance decomposition analysis revealed aggregate supply shocks to have dominated in the early part of the sample period, and monetary policy and spread shocks at the end. Our results imply that ignoring other possible shocks in the model is likely to lead to incorrect inferences, and over-reliance on (conventional) monetary policy in correcting for possible bubbles in the REITs sector, which it will fail to rectify, given the importance of other shocks driving the REITs sector.

Theory suggests that the effect of inequality on growth varies with the level of economic development, as captured by the ratio of human capital to physical capital. In particular, the effect is shown to be positive at lower levels of this ratio, and turns negative beyond a threshold in such models. Using a comprehensive panel of annual data for the 48 contiguous US states over the period 1948 to 2014, we find overwhelming evidence in support of this theory, unlike prior work on this topic. Hence, our paper highlights the importance of accurately measuring the process of economic development using data on human capital and physical capital, instead of using proxies that are not theoretically consistent. Understandably, if not done so, policymakers would end up undertaking incorrect decisions.

This paper introduces a new trading strategy in investment: including the asset (Asset A) with the highest mean, the asset (Asset B) that stochastically dominates many other assets, and the asset (Asset C) with the smallest standard deviation in their portfolio to form portfolios in the efficient frontier for emerging and developed markets that could get higher expected utility and/or expected arbitrage opportunities. To test whether our proposed new trading strategy performs better, we set a few conjectures including the conjectures that investors should include any one, two, or three of Assets A, B, and C from emerging and developed markets. We test whether the conjectures hold by employing both mean-variance and stochastic dominance (SD) approaches to examine the performance of the portfolio formed by using hedge funds from emerging and developed markets with and without Assets A, B, and C, the naïve 1/N portfolio, and all other assets studied in our paper. We find that most of the portfolios with assets A, B, and C++ stochastically dominate the corresponding portfolio without any one, two, or all three of the A, B, and C strategies and dominate most, if not all, of the individual assets and the naïve 1/N portfolio in the emerging and developed markets, implying the existence of expected arbitrage opportunities in either emerging or developed markets and the market is inefficient. In addition, in this paper, we set a conjecture that combinations of portfolios with no arbitrage opportunity could generate portfolios that could have expected arbitrage opportunity. Our findings conclude that the conjecture holds and we claim that this phenomenon is a new anomaly in the financial market and our paper discovers a new anomaly in the financial market that expected arbitrage opportunity could be generated.