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Mean and variance causality between the Cyprus Stock Exchange and major equity markets

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Author Info

  • Eleni Constantinou

    (Department of Accounting and Finance, The Philips College, 4-6 Lamias Street, CY-2100, Nicosia,)

  • Robert Georgiades

    (Department of Accounting and Finance, The Philips College, 4-6 Lamias Street, CY-2100, Nicosia,)

  • Avo Kazandjian

    (Department of Business Studies, The Philips College, 4-6 Lamias Street, CY-2100, Nicosia, Cyprus.)

  • George Kouretas

    () (Department of Economics, University of Crete, Greece)

Abstract

This paper examines the issue of mean and variance causality across four equities markets using daily data for the period 1996-2002. We apply the testing procedure developed by Cheung and Ng (1996) in order to test for mean and variance spillovers. The main findings are: (i) In contrast to the findings of previous studies, EGARCH-M processes characterize each stock returns series in all markets; (ii) There is substantial evidence of causality in both mean and variance with the causality in mean largely being driven by the causality in variance; and (iii) The results indicate the stock markets of Athens, London and New York are the major exporters of causality and the stock market of Cyprus is an importer of causality.

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Bibliographic Info

Paper provided by University of Crete, Department of Economics in its series Working Papers with number 0501.

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Length: 30 pages
Date of creation: 00 Jan 2005
Date of revision:
Handle: RePEc:crt:wpaper:0501

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Keywords: Causality; cross-correlation function; EGARCH-M; equity market;

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References

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  1. Phillips, P.C.B., 1986. "Testing for a Unit Root in Time Series Regression," Cahiers de recherche 8633, Universite de Montreal, Departement de sciences economiques.
  2. Cheung, Yin-Wong & Ng, Lilian K., 1996. "A causality-in-variance test and its application to financial market prices," Journal of Econometrics, Elsevier, vol. 72(1-2), pages 33-48.
  3. Drost, Feike C & Nijman, Theo E, 1993. "Temporal Aggregation of GARCH Processes," Econometrica, Econometric Society, vol. 61(4), pages 909-27, July.
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  7. Sephton, Peter S., 1995. "Response surface estimates of the KPSS stationarity test," Economics Letters, Elsevier, vol. 47(3-4), pages 255-261, March.
  8. Elliott, Graham, 1999. "Efficient Tests for a Unit Root When the Initial Observation Is Drawn from Its Unconditional Distribution," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(3), pages 767-83, August.
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  15. Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996. "Efficient Tests for an Autoregressive Unit Root," Econometrica, Econometric Society, vol. 64(4), pages 813-36, July.
  16. Bollerslev, Tim, 1987. "A Conditionally Heteroskedastic Time Series Model for Speculative Prices and Rates of Return," The Review of Economics and Statistics, MIT Press, vol. 69(3), pages 542-47, August.
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Cited by:
  1. Eleni Constantinou & Avo Kazandjian & George Kouretas & Vera Tahmazian, 2005. "Common Stochastic Trends among the Cyprus Stock Exchange and the ASE, LSE and NYSE," Working Papers 0520, University of Crete, Department of Economics.

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