Granger causality analysis of the cee stock markets including nonsynchronous trading effects

Granger causality analysis of the cee stock markets including nonsynchronous trading effects

Joanna Olbrys, Elżbieta Majewska

 

Keywords: CEE stock markets, market frictions, nonsynchronous trading, Granger causality

 

Summary: This paper focuses on friction in trading processes in the context of the implications of nonsynchronous trading effects, especially in the CEE stock markets. We analyze the Granger causality, and we investigate both the whole sample May 2004 – April 2012 and two equal subsamples: the ‘crisis’ period and the ‘post-crisis’ period. Our results show several causal relationships in the whole sample period, in the case of the group of the biggest CEE stock market indexes and the group of the three Baltic market indexes. Moreover, to accommodate the ‘nonsynchronous trading effect II’ in the Granger causality tests, we propose a version of a VAR model with a modified dynamic structure of lags for the CEE and US stock market indexes. We observe a pronounced feedback relationship for almost all of the analyzed models, both in the whole sample period and in the two subsamples. In light of our results, it seems that taking into account the ‘nonsynchronous trading effect II’ plays a crucial role in examining the lead-lag relationships among the world stock markets.

 

References:

 

Adkins, L. C., Using Gretl for Principles of Econometrics, 4th Ed., Version 1.04. 2012.

 

Atchison, M., Butler, K., Simonds, R., Nonsynchronous Security Trading and Market Index Autocorrelation, “Journal of Finance”, 42, pp. 111-118, 1987.

 

Baumöhl, E., Výrost, T., Stock Market Integration: Granger Causality Testing with Respect to Nonsynchronous Trading Effects, “Finance a Uver: Czech Journal of Economics and Finance”, 60(5), pp. 414-425, 2010.

 

Bekaert, G., Harvey, G. R., Lumsdaine, R. L., The Dynamic of Emerging Market Equity Flows, “Journal of International Money and Finance”, 21, pp. 295-350, 2002.

 

Berglund, T., Liljeblom, E., Market Serial Correlation on a Small Security Market: A Note, “Journal of Finance”, 43(5), pp. 1265-1274, 1988.

 

Brzeszczyński, J., Gajdka, J., Schabek, T., The Role of Stock Size and Trading Intensity in the Magnitude of the “Interval Effect” in Beta Estimation: Empirical Evidence from the Polish Capital Market, “Emerging Markets Finance & Trade”, 47(1), pp. 28-49, 2011.

 

Bütner, D., Hayo, B., News and Correlations of CEE-3 Financial Markets, “Economic Modelling”, 27, pp. 915-922, 2010.

 

Campbell, J. Y., Lo, A. W., MacKinlay, A. C., The Econometrics of Financial Markets. Princeton University Press, New Jersey 1997.

 

Černy, A., Koblas, M., Stock Market Integration and the Speed of Information Transmission, “Finance a Uver: Czech Journal of Economics and Finance”, 58, pp. 2-20, 2008.

 

Cohen, K. J., Hawawini, G. A., Maier, S. F., Schwartz, R. A., Whitcomb, D. K., Implications of Microstructure Theory for Empirical Research on Stock Price Behaviour, “Journal of Finance”, 35, pp. 249-257, 1980.

 

Cottrell, A., Lucchetti, R., Gretl User’s Guide, January 2012.

 

Dajcman, S., The Dynamics of Return Comovement and Spillovers between the Czech and European Stock Markets in the Period 1997 – 2010, “Finance a Uver: Czech Journal of Economics and

Finance”, 62(4), pp. 368-390, 2012.

 

Dickey, D. A., Fuller, W. A., Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root, “Econometrica”, 49, pp. 1057-1072, 1981.

 

Dooley, M., Hutchison, M., Transmission of the U.S. Subprime Crisis to Emerging Markets: Evidence on the Decoupling–Recoupling Hypothesis, “Journal of International Money and Finance”, 28, pp. 1331–1349, 2009.

 

Drakos, K., Kutan, A. M., Why Do Financial Markets Move Together?, “Eastern European Economics”, 43(4), pp. 5-26, 2005.

 

Égert, B., Kočenda, E., Time-Varying Synchronization of European Stock Markets, “Empirical Economics”, 40, pp. 393-407, 2011.

 

Ericsson, N. R., Campos, J., Hong-Anh Tran., PC-GIVE and David Hendry’s Econometric Methodology, Board of Governors of the Federal Reserve System, “International Finance Discussion

Papers”, No. 406, 1991.

 

Eun, C. S., Shim, S., International Transmission of Stock Market Movements, “Journal of Financial and Quantitative Analysis”, 24(2), pp. 241-256, 1989.

 

Fisher, L., Some New Stock Market Indexes, “Journal of Business”, 39, pp. 191-225, 1966.

 

Forbes, K. J., Rigobon, R., No Contagion, Only Interdependence: Measuring Stock Market Comovements, “Journal of Finance”, 57(5), pp. 2223-2261, 2002.

 

Frank, N., Hesse, H., Financial Spillovers to Emerging Markets during the Global Financial Crisis, “Finance a Uver: Czech Journal of Economics and Finance”, 59(6), pp. 507-521, 2009.

 

Granger, C. W. J., Investigating Causal Relations by Econometric Models and Cross-Spectral Methods, “Econometrica”, 37(3), pp. 424-438, 1969.

 

Hamao, Y., Masulis, R. W., Ng, V., Correlations in Price Changes and Volatility across International Stock Markets, “Review of Financial Studies”, 3(2), pp. 281-307, 1990.

 

Hanousek, J., Filer, R. K., The Relationship between Economic Factors and Equity Markets in Central Europe, “Economics of Transition”, 8(3), pp. 623-638, 2000.

 

Hawawini, G. A., The Intertemporal Cross Dependence in Securities Daily Returns and the Short Run Intervaling Effect on Systematic Risk, “Journal of Financial and Quantitative Analysis”, 15, pp. 139-149, 1980.

 

Kadlec, G. B., Patterson, D. M., A Transactions Data Analysis of Nonsynchronous Trading, “The Review of Financial Studies”, 12(3), pp. 609-630, 1999.

 

Kwan, A. C. C., Sim, A. B., Cotsomitis, J. A., The Causal Relationships between Equity Indices on World Exchanges, “Applied Economics”, 27, pp. 33-37, 1995.

 

Lo, A. W., MacKinlay, A. C., An Econometric Analysis of Nonsynchronous Trading, “Journal of Econometrics”, 45, pp. 181-212, 1990.

 

MacKinnon, J. G., Critical Values for Cointegration Tests [in:] Engle, R. F., Granger, C. W. J. (eds), Long-run Economic Relationships: Readings in Cointegration, pp. 267-276. Oxford University Press, Oxford 1991.

 

Maddala, G. S., Introduction to Econometrics. Third Edition, John Wiley, New York, 2001.

 

Martens, M., Poon, S. H., Returns Synchronization and Daily Correlation Dynamics between International Stock Markets, “Journal of Banking and Finance”, 25, pp. 1805-1827, 2001.

 

Masih, R., Masih, A. M. M., Long and Short Term Dynamic Causal Transmission Amongst International Stock Markets, “Journal of International Money and Finance”, 20, pp. 563-587, 2001.

 

Mun, M., Brooks, R., The Roles of News and Volatility in Stock Market Correlations during the Global Financial Crisis, “Emerging Markets Review”, 13, pp. 1-7, 2012.

 

Olbrys, J., The Intertemporal Cross Price Behavior and the “Fisher Effect” on the Warsaw Stock Exchange, “Ekonometria 31. Theory and Applications of Quantitative Methods”, Prace Naukowe UE we Wrocławiu, 194, pp. 153-163, 2011.

 

Olbrys, J., Majewska, E., Friction in Trading Processes: Some Empirical Evidence from the Indexes of the CEE Emerging Stock Markets, Proceedings of the International Finance Banking & Insurance Congress FIBAC 2012, pp. 90-99, Antalya, Turkey, 2012.

 

Perry, P. R., Portfolio Serial Correlation and Nonsynchronous Trading, “Journal of Financial and Quantitative Analysis”, 20, pp. 517-523, 1985.

 

Pogue, G. A., Solnik, B. H., The Market Model Applied to European Common Stocks: Some Empirical Results, “Journal of Financial and Quantitative Analysis”, 9, pp. 917-944, 1974.

 

Ratanapakorn, O., Sharma, S. C., Interrelationships among Regional Stock Indices, “Review of Financial Economics”, 11, pp. 91-108, 2002.

 

Rigobon, R., On the Measurement of the International Propagation of Shocks: Is the Transmission Stable?, “Journal of International Economics”, 61, pp. 261-283, 2003.

 

Scholes, M., Williams, J., Estimating Betas from Nonsynchronous Data, “Journal of Financial Economics”, 5, pp. 309-327, 1977.

 

Schwert, G. W., Tests for Unit Roots: A Monte Carlo Investigation, “Journal of Business & Economic Statistics”, 7(2), pp. 5-17, 1989.

 

Schwert, G. W., Indexes of U.S. Stock Prices from 1802 to 1987, “Journal of Business”, 63(3), pp. 399-426, 1990.

 

Smith, K. L., Brocato, J., Rogers, J. E., Regularities in the Data between Major Equity Markets: Evidence from Granger Causality Tests, “Applied Financial Economics”, 3, pp. 55-60, 1993.

 

Southall, T., European Financial Markets. The Effects of European Union Membership on Central and Eastern European Equity Markets. Physica–Verlag, Heidelberg, 2008.

 

Syriopoulos, T., Dynamic Linkages between Emerging European and Developed Stock Markets: Has the EMU any Impact?, “International Review of Financial Analysis”, 16, pp. 41-60, 2007.

 

Tsay, R. S., Analysis of Financial Time Series. John Wiley, New York 2010.

 

Ülkü, N., Modeling Comovement among Emerging Stock Markets: The Case of Budapest and Istanbul, “Finance a Uver: Czech Journal of Economics and Finance”, 61(3), pp. 277-304, 2011.

 

Witkowska, D., Kompa, K., Matuszewska-Janica, A., Analysis of Linkages between Central and Eastern European Capital Markets, “Dynamic Econometric Models”, 12, pp. 19-33, 2012.

 

 

 

 

Dokument PDF

Read 922 times