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Contemporaneous Causal Orderings of CSI300 and Futures Prices through Directed Acyclic Graphs

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  • Xiaojie Xu

    (North Carolina State University)

Abstract

This paper examines contemporaneous causality among daily price series of the Chinese Stock Index 300 (CSI300), nearby futures, and first distant futures for April 2010 ~ November 2014 through vector error correction modeling and directed acyclic graphs. As non-Gaussian data are prominent in financial time series, the recently developed Linear Non-Gaussian Acyclic Model (LiNGAM) algorithm is utilized to facilitate analysis. It refines results derived from the PC algorithm, which does not lead to the unique identification of a directed acyclic graph. The price series studied are tied together through cointegration and the nearby futures adjusts towards long-run relationships. Contemporaneous price information is determined to be discovered in the nearby futures. The results suggest that a shock to the nearby futures could have long-lasting effects on prices across the three series under consideration. Policy makers should pay close attention to the nearby futures for financial stability.

Suggested Citation

  • Xiaojie Xu, 2019. "Contemporaneous Causal Orderings of CSI300 and Futures Prices through Directed Acyclic Graphs," Economics Bulletin, AccessEcon, vol. 39(3), pages 2052-2077.
    • Handle: RePEc:ebl:ecbull:eb-19-00237
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    More about this item

    Keywords

    CSI300; Futures; Contemporaneous Causality; Graph Theory; LiNGAM;
    All these keywords.

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • G1 - Financial Economics - - General Financial Markets

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