Causality Analysis Between Stock Market Indices

Open access

Summary

The paper examines relationships between selected stock market indices in Western Europe, Central Europe, and the United States. The study focuses on two periods, from January 1998 to August 2006 and from September 2006 to December 2016. The first one includes stock quotes from before the financial crisis while the second one covers the crisis and changes in the economic situation in post-crisis years. Relationships between stock market indices in developed economies were more frequent and durable than in Central Europe, although they were subject to changes. In our investigation into Granger causality relationships we observed changes in these relationships and in their direction for stock markets in Central Europe, while bidirectional relationships between indices in developed economies remained stable over time. Changes in relationships between indices, in particular long-term interdependences, may result from the impact of the 2008 financial crisis. The increased number of causality relationships for the markets in Central Europe may testify to the advancing integration of the EU common market.

Augustyński I., 2011, Wpływ giełd światowych na główne indeksy giełdowe w Polsce, Finansowy Kwartalnik Internetowy „e-Finanse”, vol. 7, no. 1, pp. 1-12.

Avdulaj K., Barunik J., 2013, Can we still benefit from international diversification? The case of the Czech and German stock markets, Czech Journal of Economics and Finance, vol. 63, no. 5, pp. 425-442.

Baumohl E., Vyrost T., 2010, Stock market integration: Granger causality testing with respect to nonsynchronous trading effects, Czech Journal of Economics and Finance, vol. 60, no. 5, pp. 414-425.

Chow G.C., 1960, Tests of equality between subsets of coefficients in two linear regression models, Econometrica, vol. 28, no. 3, pp. 591-605.

Cukierman A., 2013, Monetary policy and institutions before, during, and after the global financial crisis, Journal of Financial Stability, vol. 9, no. 3, pp. 373-384.

Czapkiewicz A., Jamer P., 2015, Dynamika współzależności warszawskiej Giełdy Papierów Wartościowych z innymi rynkami finansowymi, Ekonometria, vol. 2, no. 48, pp. 100-113.

Demian C.V., 2011, Cointegration in Central and East European markets in light of EU accession, Journal of International Financial Markets, Institutions & Money, vol. 21, no. 1, pp. 144-155.

Dickey D.A., Fuller W.A., 1979, Distribution of the estimators for autoregressive time-series with a unit root, Journal of the American Statistical Association, vol. 74, no. 366, pp. 427-431.

Doman M., Doman R., 2013, The Dynamics and strength of linkages between the stock markets in the Czech Republic, Hungary and Poland after their EU Accession, Dynamic Econometric Models, vol. 13, pp. 5-31.

Engle R.F. Granger C.W.J., 1987, Co-integration and error correction: representation, estimation and testing, Econometrica, vol. 55, no. 2, pp. 251-276.

Evrim-Mandaci P., Cagli E.C., 2012, Relationships between the US and European stock markets during the recent financial turmoil: Evidence from the VARFIMA model, Applied Economics Letters, vol. 19, no. 17, pp. 1697-1701.

Gjika D., Horvath R., 2013, Stock market co-movements in Central Europe: Evidence from the asymmetric DCC model, Economic Modelling, vol. 33, pp. 55-64.

GPW, 2017, Udział inwestorów w obrotach giełdowych – dane zagregowane 1996-2016, https://www.gpw.pl (11.12.2017).

Granger C.W.J., 1969, Investigating causal relations by econometric models and cross-spectral methods, Econometrica, vol. 37, no. 3, pp. 424-438.

Hilliard, J.E., 1979, The relationship between equity indices on world exchanges, Journal of Finance, vol. 34, no. 1, pp. 103-114.

Hołubowicz K., 2014, Korelacja indeksów cen akcji na globalnych rynkach finansowych, Nauki o Finansach, vol. 2, no. 19, pp. 71-81,

Johansen S., 1988, Statistical analysis of cointegration vectors, Journal of Economic Dynamics and Control, vol. 12, no. 2-3, pp. 231-254.

Kwan A.C.C., Sim A.B., Cotsomitis J.A., 1995, The causal relationships between equity indices on world exchanges, Applied Economics, vol. 27, no. 1, pp. 33-37.

Kwiatkowski D., Phillips P.C.B., Schmidt P., Shin Y., 1992, Testing the null hypothesis of stationarity against the alternative of a unit root: how sure are we that economic time series have a unit root?, Journal of Econometrics, vol. 54, no. 1-3, pp. 159-178.

Laeven L., Tong H., 2012, US monetary shocks and global stock prices, Journal of Financial Intermediation, vol. 21, no. 3, pp. 530-547.

Lothian J.R., 2002, Internationalization of money and the globalization of financial markets, Journal of International Money and Finance, vol. 21, no. 6, pp. 699-724.

Malliaris A.G., Urrita J., 1992, The international crash of October 1987: Causality tests, Journal of Financial and Quantitative Analysis, vol. 27, no. 3, pp. 353-364.

Masih A.M.M., Masih R., 2001, Long and short term dynamic causal transmission amongst international stock markets, Journal of International Money and Finance, vol. 20, no. 4, pp. 563-587.

Masih A.M.M., Masih R., 2002, Propagative causal price transmission among international stock markets: Evidence from the pre and post-globalization period, Global Finance Journal, vol. 13, no. 1, pp. 63-91.

Ozdemir Z.A., Olgun H., Saracoglu B., 2009, Dynamic linkages between the center and periphery in international stock markets, Research in International Business and Finance, vol. 23, no. 1, pp. 46-53.

Prenzena P., 2016, Analiza powiązań między indeksami giełdy francuskiej, holenderskiej i belgijskiej z wykorzystaniem modelu korekty błędem, Studia Ekonomiczne Zeszyty Naukowe Uniwersytetu Ekonomicznego w Katowicach, vol. 289/16, pp. 109-126.

Smith K.L., Brocato J., Rogers J.E., 1993, Regularities in the data between major markets: Evidence from Granger causality tests, Applied Economics, vol. 3, no. 1, pp. 55-60.

Syllignakis M.N., Kouretas G.P., 2011, Dynamic correlation analysis of financial contagion: Evidence from the Central and Eastern European markets, International Review of Economics and Finance, vol. 20, no. 4, pp. 717-732.

Syriopoulos T., 2004, International portfolio diversification to Central European stock markets, Applied Financial Economics, vol. 14, no. 17, pp. 1253-1268.

Tavares J., 2009, Economic integration and the co-movement of stock returns, Economics Letters, vol. 103, no. 2, pp. 65-67.

Tintin C., 2013, The determinants of foreign direct investment inflows in the Central and Eastern European Countries: The importance of institutions, Communist and Post-Communist Studies, vol. 46, no. 2, pp. 287-298.

Yang L., Tapon F., Sun Y., 2006, International correlations across stock markets and industries: Trends and patterns 1988-2002, Applied Financial Economics, vol. 16, no. 16, pp. 1171-1183.