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Testing For Linear And Non-Linear Granger Non-Causality Hypothesis Between Stock And Bond: The Cases Of Malaysia And Singapore

Author

Listed:
  • SHEUE LI ONG

    (Faculty of Science and Natural Resources, Universiti Malaysia Sabah, Jalan UMS, 88400 Kota Kinabalu, Sabah, Malaysia)

  • CHONG MUN HO

    (Faculty of Science and Natural Resources, Universiti Malaysia Sabah, Jalan UMS, 88400 Kota Kinabalu, Sabah, Malaysia)

Abstract

The untested assumption of linear relationship between stocks and bonds in previous empirical studies may lead to an invalid conclusion if the actual relationship is non-linear. The emphasis of this paper is on the effect of non-linearities on causal relationships between stocks and bonds in the cases of Malaysia and Singapore. Results from linearity tests indicate the existence of non-linearities in the dynamic relationship between stocks and bonds. Non-linear causality test results based on Taylor expansion suggest that non-linear causality flows from stocks to bonds and vice versa. The test further confirms that bonds with different maturity dates have different relationships with stocks.

Suggested Citation

  • Sheue Li Ong & Chong Mun Ho, 2014. "Testing For Linear And Non-Linear Granger Non-Causality Hypothesis Between Stock And Bond: The Cases Of Malaysia And Singapore," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 59(05), pages 1-18.
    • Handle: RePEc:wsi:serxxx:v:59:y:2014:i:05:n:s0217590814500453
    DOI: 10.1142/S0217590814500453
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    References listed on IDEAS

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    1. Péguin-Feissolle, Anne & Strikholm, Birgit & Teräsvirta, Timo, 2007. "Testing the Granger noncausality hypothesis in stationary nonlinear models of unknown functional form," SSE/EFI Working Paper Series in Economics and Finance 672, Stockholm School of Economics, revised 18 Jan 2012.
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    Cited by:

    1. Muhammad Hanif & Ariba Sabah, 2020. "Stock Markets’ Integration in Post Financial Crisis Era: Evidence from Literature," Capital Markets Review, Malaysian Finance Association, vol. 28(2), pages 43-71.
    2. Borjigin, Sumuya & Yang, Yating & Yang, Xiaoguang & Sun, Leilei, 2018. "Econometric testing on linear and nonlinear dynamic relation between stock prices and macroeconomy in China," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 493(C), pages 107-115.

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    More about this item

    Keywords

    Stock and bond; linear; non-linear; causality; Taylor series approximation; C12; C22; G10;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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