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Inter-market information flow: a nonlinear approach

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  • Adel Boubaker
  • Saber Sebai

Abstract

This article attempts to characterize the pattern of information flows between the stock markets by determining mean and variance causal relationships. A two-step procedure proposed by Cheung and Ng (1996) is used. Stock market returns are specified as Autoregressive-Generalized Autoregressive Conditional Heteroskedasticity (AR-GARCH) models with Monday and Friday effects. Stock markets of our sample are chosen to analyse the main causes of information flows documented in the literature: linkage between economic fundamentals and the time lag between the stock markets' opening hours. Results provide evidence of nonlinear causality between stock markets, even when linear Granger causality is rejected. Causality seems to be attributed to both economic linkage and time lag between market openings.

Suggested Citation

  • Adel Boubaker & Saber Sebai, 2009. "Inter-market information flow: a nonlinear approach," Applied Economics Letters, Taylor & Francis Journals, vol. 16(10), pages 1009-1015.
    • Handle: RePEc:taf:apeclt:v:16:y:2009:i:10:p:1009-1015
    DOI: 10.1080/17446540802345414
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    References listed on IDEAS

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    1. Cheung, Yin-Wong & Ng, Lilian K., 1996. "A causality-in-variance test and its application to financial market prices," Journal of Econometrics, Elsevier, vol. 72(1-2), pages 33-48.
    2. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-438, July.
    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.
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    Cited by:

    1. Bernd Hayo & Ali M. Kutan & Matthias Neuenkirch, 2012. "Federal Reserve Communications and Emerging Equity Markets," Southern Economic Journal, John Wiley & Sons, vol. 78(3), pages 1041-1056, January.

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