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Testing for the Granger-causality between returns in the U.S. and GIPSI stock markets

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  • Al-Yahyaee, Khamis Hamed
  • Mensi, Walid
  • Al-Jarrah, Idries Mohammad Wanas
  • Tiwari, Aviral Kumar

Abstract

This paper studies the Granger-causality between the U.S. stock market and five stock markets in so-called ‘debtor countries’ of the European Union: Greece, Ireland, Portugal, Spain and Italy (GIPSI). We consider four novel methods in the study: (i) General Entropy-based Method, (ii) First-order Approximation of Likelihood Ratios (LR), (iii) Basic Skewness-based Method for Skewed Variables, and (iv) New Skewness-based Method, which corrects for skewness. The results show evidence of nonlinear causality Granger from the U.S to the Greek and Spanish stock markets. In addition, a significant causality amongst GIPSI stock markets is observed. Finally, the collapse of Lehman brothers impacts the causalities among stock markets. These results have important implications for international diversification and portfolio risk management.

Suggested Citation

  • Al-Yahyaee, Khamis Hamed & Mensi, Walid & Al-Jarrah, Idries Mohammad Wanas & Tiwari, Aviral Kumar, 2019. "Testing for the Granger-causality between returns in the U.S. and GIPSI stock markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 531(C).
    • Handle: RePEc:eee:phsmap:v:531:y:2019:i:c:s0378437119305424
    DOI: 10.1016/j.physa.2019.04.186
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    Cited by:

    1. Xiao, Di & Wang, Jun, 2020. "Dynamic complexity and causality of crude oil and major stock markets," Energy, Elsevier, vol. 193(C).
    2. Naeem, Muhammad Abubakr & Karim, Sitara & Tiwari, Aviral Kumar, 2022. "Quantifying systemic risk in US industries using neural network quantile regression," Research in International Business and Finance, Elsevier, vol. 61(C).
    3. Syed Jawad Hussain Shahzad & Elie Bouri & Ladislav Kristoufek & Tareq Saeed, 2021. "Impact of the COVID-19 outbreak on the US equity sectors: Evidence from quantile return spillovers," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 7(1), pages 1-23, December.

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