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The EURPLN, DAX and WIG20: the Granger causality tests before and during the crisis

Author

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  • Ewa M. Syczewska

    (Warsaw School of Economics)

Abstract

In this paper the possible interdependence between bilateral exchange rate behavior and the corresponding stock indices is checked, with application to the EURPLN rate and the DAX and WIG20 stock indices. Methods and results are similar to previous study of USDPLN exchange rate, and SP500 and WIG20 indices. The linear (including instantaneous) causality test and the Diks-Panchenko test are applied to logarithmic returns and to the daily measure of volatility r_t=ln⠡(P_(max,t)/P_(min,t) ). Differences between before- and during-crisis period results are less vivid than in case of the U.S. and the Polish instruments. But there is a substantial difference between linear (and Diks-Panchenko) test results and the instantaneous Granger-causality test results, on the other hand – between returns and daily volatility.

Suggested Citation

  • Ewa M. Syczewska, 2014. "The EURPLN, DAX and WIG20: the Granger causality tests before and during the crisis," Dynamic Econometric Models, Uniwersytet Mikolaja Kopernika, vol. 14, pages 93-104.
    • Handle: RePEc:cpn:umkdem:v:14:y:2014:p:93-104
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    References listed on IDEAS

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    1. Luc Bauwens & Dagfinn Rime & Genaro Sucarrat, 2008. "Exchange rate volatility and the mixture of distribution hypothesis," Studies in Empirical Economics, in: Luc Bauwens & Winfried Pohlmeier & David Veredas (ed.), High Frequency Financial Econometrics, pages 7-29, Springer.
    2. Diks, Cees & Panchenko, Valentyn, 2006. "A new statistic and practical guidelines for nonparametric Granger causality testing," Journal of Economic Dynamics and Control, Elsevier, vol. 30(9-10), pages 1647-1669.
    3. Hiemstra, Craig & Jones, Jonathan D, 1994. "Testing for Linear and Nonlinear Granger Causality in the Stock Price-Volume Relation," Journal of Finance, American Finance Association, vol. 49(5), pages 1639-1664, December.
    4. Luc Bauwens & Winfried Pohlmeier & David Veredas (ed.), 2008. "High Frequency Financial Econometrics," Studies in Empirical Economics, Springer, number 978-3-7908-1992-2, January.
    5. Ewa M. Syczewska, 2010. "Increase of exchange rate risk during current crisis," Collegium of Economic Analysis Annals, Warsaw School of Economics, Collegium of Economic Analysis, issue 21, pages 99-122.
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    JEL classification:

    • C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics
    • G19 - Financial Economics - - General Financial Markets - - - Other

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