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In Search of Market Index Leaders: Evidence from World Financial Markets

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  • Canegrati, Emanuele

Abstract

This paper investigates the presence of Granger-causality amongst world market indices: S&P 500, Dow Jones Industrial Average, Eurostoxx 50, Nikkei, FTSE 100, from January 2nd 1987 to October 17th 2008. Using daily market returns I performed a Granger-causality test, based on the Vector Autoregressive (VAR) model, in order to detect the causalities amongst indices. Different sub-samples were considered, which take into account the distinction between bearish and bullish phases of the markets. Results show that there is high Granger-causality amongst stock returns in every phase of financial markets, but that a real market index leader does not exist, except for Nikkei and Eurostoxx in the third quartile.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 11292.

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Date of creation: 29 Oct 2008
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Handle: RePEc:pra:mprapa:11292

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Keywords: Granger-causality; Asian stock markets; market indices; VAR;

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  1. Herwany, Aldrin & Febrian, Erie, 2008. "Co-integration and Causality Analysis on Developed Asian Markets For Risk Management & Portfolio Selection," MPRA Paper 10259, University Library of Munich, Germany.
  2. Granger, Clive W J & Hallman, Jeffrey J, 1991. "Long Memory Series with Attractors," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 53(1), pages 11-26, February.
  3. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-38, July.
  4. Pan, Ming-Shiun & Liu, Y. Angela & Roth, Herbert J., 1999. "Common stochastic trends and volatility in Asian-Pacific equity markets," Global Finance Journal, Elsevier, vol. 10(2), pages 161-172.
  5. Granger, C. W. J., 1981. "Some properties of time series data and their use in econometric model specification," Journal of Econometrics, Elsevier, vol. 16(1), pages 121-130, May.
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