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Multivariate Granger causality between financial markets: Evidence from US, Europe, Asia and Emerging market

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  • Samuel Tabot Enow

    (The IIE Varsity college, Durban, South Africa)

Abstract

Financial markets are a system of complex price dynamics that are often influenced by various nonlinear factors. Traditional linear models often do not capture the inherent nonlinearities that exist between them. The aim of this study was to examine the interconnectedness of global financial markets using a multivariate Granger causality framework, focusing the United States, Europe, Asia, and emerging markets. Daily closing share prices spanning 13 years were utilised (January 2010 to December 2023) to analyze the shock transmission dynamics. The findings revealed unidirectional causality from the U.S. to European, Japanese, and Emerging markets, underscoring its dominant role in global financial networks. Conversely, European and Asian markets exhibit no reverse causality on the United States, highlighting asymmetrical interdependence. Notably, China’s Shanghai Composite Granger-causes Emerging market returns, reflecting its rising influence. These insights challenge conventional models that underestimate multilateral linkages, demonstrating that financial integration has intensified bidirectional interactions between Emerging markets and developed markets. By implication, investors should reassess exposure to dominant markets like the U.S. and China’s growing sway over Emerging economies while policymakers should prioritize cross-border spillover monitoring and systemic risk frameworks to address asymmetrical dependencies. Also, institutions must adopt nonlinear models to better capture shock transmission and evolving interdependencies, enhancing resilience against contagion. Key Words:Multivariate Granger Causality; Stationary Test; Financial Market Linkages; Global Financial Markets

Suggested Citation

  • Samuel Tabot Enow, 2025. "Multivariate Granger causality between financial markets: Evidence from US, Europe, Asia and Emerging market," International Journal of Business Ecosystem & Strategy (2687-2293), Bussecon International Academy, vol. 7(2), pages 270-275, April.
    • Handle: RePEc:adi:ijbess:v:7:y:2025:i:2:p:270-275
    DOI: 10.36096/ijbes.v7i2.788
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    References listed on IDEAS

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