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Japan s Stock Market Performance: Evidence from Toda-Yamamoto and Dolado-Lutkepohl Tests for Multivariate Granger Causality

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  • Kishor K. Guru-Gharana

    (Texas A & M University-Commerce, 2200 Campbell St, Commerce, TX 75428, USA)

  • Matiur Rahman

    (McNeese State University, 4205 Ryan St, Lake Charles, LA 70609, USA)

  • Anisul M. Islam

    (University of Houston-Downtown, One N Main St, Houston, TX 77002, USA.)

Abstract

This paper empirically examines the causal linkages of Japan s stock market (proxied by Nikkei 225 index) performance with selected key macroeconomic fundamentals. Relatively recent Toda-Yamamoto and Dolado-Lutkepohl, multivariate Granger causality tests are implemented. Monthly time series data from September 1974 to February 2017 with a large sample size of 510 monthly observations covering the floating exchange rate regime were utilized. The study documents some interesting and some unexpected results. Bi-directional causality is evidenced only between the stock market and the industrial production. Somewhat counterintuitively, unidirectional causality runs from stock market to money supply. Furthermore, unidirectional causality flows from interest rate (bond yield) to stock market. Not so surprisingly, no causality is detected between the stock market and the general price level. This is also true for stock market and exchange rate. The above findings may aid Japanese policy makers to formulate appropriate financial, monetary and exchange rate management policies. Japan should give second thought on the efficacy of its over reliance on monetary policy with interest-rates targeting and should prepare itself for launching a pragmatic fiscal stimulus program.

Suggested Citation

  • Kishor K. Guru-Gharana & Matiur Rahman & Anisul M. Islam, 2021. "Japan s Stock Market Performance: Evidence from Toda-Yamamoto and Dolado-Lutkepohl Tests for Multivariate Granger Causality," International Journal of Economics and Financial Issues, Econjournals, vol. 11(3), pages 107-122.
    • Handle: RePEc:eco:journ1:2021-03-12
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    More about this item

    Keywords

    Stock Market; Macroeconomics Fundamentals; Granger Causality;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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