Symmetric and asymmetric nonlinear causalities between oil prices and the U.S. economic sectors

This study investigates the causal dynamics of the U.S. sector price changes and oil price changes using the symmetric nonlinear and asymmetric nonlinear causality tests. We find a unidirectional causality from each sector to the oil market using the Granger and MWald linear causality tests. However, the symmetric nonlinear and asymmetric nonlinear causality for negative price changes tests yield unidirectional causality from the oil to the sector price changes which sharply contrast the evidence using the linear models. We find bidirectional causality using the asymmetric nonlinear test for positive price changes, suggesting temporal, dual and nonlinear information flow during bull markets. Our results from the nonlinear and asymmetric causality tests remain robust after accounting for structural breaks. The empirical findings unravel nonlinear interactions between sector price and oil price changes as well as the importance of signs of changes in the interacting variables, implying oil returns may need to be priced when forecasting sector returns.     

Time-varying pattern causality inference in global stock markets

Causality analysis can reveal the intrinsic interactions in financial markets. Though Granger causality test and transfer entropy method have successfully determined positive and negative causal interactions, they fail to reveal a more complex causal interaction, dark causality. Moreover, the causal relationship between variables may be time-varying. Thus, in this work, we are dedicated to determining the nature of causal interaction and explore the time-varying causality in global stock markets. To achieve this goal, pattern causality (PC) theory, cross-convergent mapping (CCM) theory, the sliding window method and complex networks are applied. By them, three causal interactions with different strength are revealed in global stock markets, and the causal strength is time-varying in different periods both in simulated systems and financial markets. While the dominant causal interaction is stable except for some stock pairs in frontier and emerging markets. In total, we determine the positive dominant causality in global stock markets; that is, the overall consistent trend among stocks can be explored. Additionally, we discover some exceptions that show negative dominant causality, where the reverse trend can be revealed among them; moreover, their dominant causality is time-varying. These uncertainties should receive great attention from investors and government managers.     

Who drives whom ‐ sukuk or bond? A new evidence from granger causality and wavelet approach

Sukuk is a highly appealing alternative instrument of conventional bond in the financial market over the last two decades. To a certain extent, the market players assume sukuk as the same as bond. However, sukuk has its own fundamental asset backed principles, whereas bond is backed by debt. The objective of the study is to examine the Granger‐causality and lead–lag relationship between sukuk and bond by using the data of the Malaysian Government securities return for both conventional and Islamic instruments. The data for every working day of 7 years covering the period from January 31, 2007 to December 31, 2013 were collected from Bloomberg database. The yield returns of both securities have been plotted for each six months of a year. This study applied both Granger‐causality and dynamic co‐movement techniques such as, continuous wavelet transforms (CWT) coherence for analyzing the temporal evolution of the frequency content of both securities by decomposing each period into different time scales. The empirical findings of the paper reveal that with a bit of exception, there is a causal relationship between sukuk securities and conventional bonds for a given period of time. For robustness, this study applied the wavelet coherence approach and found that bond is led by sukuk in the long term investment horizon rather than in the short term. Our findings relating to the lead‐lag relationship between sukuk and bonds have important implications in terms of policy regulations and investment management. Future research and market practices could reinvestigate the differences between these two securities across different markets and types.     

What role do futures markets play in Bitcoin pricing? Causality,cointegration and price discovery from a time-varying perspective?

Recent papers that have explored spot and futures markets for Bitcoin have concluded that price discovery takes place either in the spot, or the futures market. Here, we consider the robustness of previous price discovery conclusions by investigating causal relationships, cointegration and price discovery between spot and futures markets for Bitcoin, using appropriate daily data and time-varying mechanisms. We apply the time-varying Granger causality test of Shi, Phillips, and Hurn [2018]; time-varying cointegration tests of Park and Hahn [1999], and time-varying information share methodologies, concluding that futures prices Granger cause spot prices and that futures prices dominate the price discovery process.     

Investor attention and cryptocurrency: Evidence from wavelet-based quantile Granger causality analysis

This paper investigates the relationship between investor attention and the major cryptocurrency markets by wavelet-based quantile Granger causality. The wavelet analysis illustrates the interdependence between investor attention and the cryptocurrency returns. Multi-scale quantile Granger causality based on wavelet decomposition further demonstrates bidirectional Granger causality between investor attention and the returns of Bitcoin, Ethereum, Ripple and Litecoin for all quantiles, except for the medium. Among them, the Granger causality from investor attention to the returns is relatively very weak for Ethereum. In the short term, the Granger causality from these cryptocurrency returns to investor attention seems symmetric, but in the medium- and long- term, the causality shows some asymmetry. The Granger causality from investor attention to these cryptocurrency returns is asymmetric and varies across cryptocurrencies and time scales. Specifically, investor attention has a relatively stronger impact on the cryptocurrency returns in bearish markets than that in bullish markets in the short term.     

Investor Sentiment Influence on the Risk-Reward Relation in the Taiwan Stock Market

We examine the influence of investor sentiment on the risk-reward relationship in the Taiwan stock market. Regression results show that the risk-reward relationship is weakly positive (significantly negative) under low (high) levels of investor sentiment. Granger causality tests indicate unidirectional, not bidirectional, causal relationships. Moreover, the negative return-variance relationship is more strongly characteristic of the over-the-counter index than of the Taiwan Stock Exchange weighted index, indicating that an unreasonable risk-reward trade-off may be more prevalent in emerging markets than in mature markets. Finally, the Wald test demonstrates that industry effects on the risk-reward relationship may be negligible.     

Asia-Pacific Stock Market Integration: New Evidence by Incorporating Regime Changes

ABSTRACT

This work provides new evidence of Asia-Pacific stock market integration by incorporating the regime changes of each stock market through the smooth transition autoregressive (STAR) model. According to empirical results, most Asia-Pacific stock market returns follow STAR dynamics to a significant degree with more rapid and frequent regime changes of a shorter nature compared with G7 markets. A series of STAR-based Granger causality tests reveal evidence of stronger equity market integration compared with linear Granger causality tests. We also find that Asia-Pacific stock markets are integrated in different levels. Finally, we provide evidence that in the early twenty-first century the influence of China and the United States on Asia-Pacific stock markets has been maintained while that of Japan has been weakened.     

沪深300股指期货与现货市场的非线性信息溢出与价格发现功能研究

采用线性与非线性Granger因果检验、协整检验和VECM模型,研究了沪深300股指期货和现货市场的线性与非线性信息溢出,并检验了期货市场的价格发现功能发挥情况。研究结果显示:线性信息溢出方面,沪深300股指期货市场对现货市场只有线性均值信息溢出,现货市场对期货市场只存在线性方差信息溢出;非线性信息溢出方面,两个市场之间不存在非线性均值信息溢出,不过二者之间存在显著的非线性方差信息溢出;沪深300股指期、现货市场之间存在着长期均衡的关系,不过不同于成熟市场中期货市场在价格发现方面居于主导地位的结论,我国股指现货市场在价格发现方面占主导地位,而期货市场处于从属地位。     

Stock returns,trading volume,and volatility: The case of African stock markets

The presence of the African Stock Markets (ASMs) in the global frontier markets indices confirms their global portfolio diversification role. This study investigates the asymmetric and intertemporal causality among the stock returns, trading volume, and volatility of eight ASMs. Results based on the linear model reveal that return generally Granger cause trading volume. However, evidence from the quantile regression shows that lagged trading volume has a negative causal effect on returns at low quantiles and positive causal effects at high quantiles. This evidence is consistent with volume-return equilibrium models, disposition and overconfidence models, and information asymmetry models. The positive causal effects of volatility on volume support the dispersion of beliefs model. In contrast, intertemporal evidence of contemporaneous and lagged causal relationships from trading volume to volatility supports the mixture of distribution hypothesis, sequential information acquisition hypothesis, and dynamic efficient market hypothesis. Volume-return and return-volume causality dynamics are quantile-specific and therefore driven by market conditions. However, the volume-volatility causality is dependent on volatility regimes. The linear model results confirm how model misspecification can distort and even reverse empirical evidence relative to nonlinear models.     

A method for evaluating the extreme risk sources of financial markets: The case of stock markets in China

Risk contagion has attracted increasing research attention in recent years. In this paper, we combined conditional Value at Risk (CVaR), Bayesian quantile regression and Granger causality test to propose a Bayesian CVaR–Granger causality test method, which is an efficient tool in analyzing sources of extreme risks in a financial market. Using this method, we determined the sources of extreme risks in major stock markets in China.     

Further insights on the relationship between SP500, VIX and volume: a new asymmetric causality test1

In the aim to explore the complex relationships between S&P500, VIX and volume we introduce a Granger causality test using the nonlinear statistic of Asymmetric Partial Transfer Entropy (APTE). Through a simulation exercise, it arises that the APTE offers precise information on the nature of the connectivity. Our empirical findings concretize the information flow that links volume, S&P500 and VIX, and merge the leverage effect and the asymmetric stock return-volume relationship into a unified framework of analysis. More specifically, when we condition on the tails, the detected causal channel provides empirical validation of the noise trading contribution to large swings in financial markets, because of the increase of trading volume and the subsequent worsening ability of market prices to adjust to new information.     

A股与H股市场的差异与互动

本文选择了28家既在香港发行H股,又在内地发行A股的上市公司作为样本,研究分割市场之间的差异性和互动关系.通过对比相同上市公司在两个市场上的收益性和波动性差异,本文发现:两个市场在年报公告、中报公告、季报公告以及预告事件下获得的超额收益具有显著差异,而在分红通过公告事件下未产生显著差异;同时,除了分红通过公告(旧信息)事件未引起市场产生明显的波动以外,其余事件都对两个市场产生了显著的波动性影响.另外,我们也发现"H股引起A股变化"的可能性要大于"A股引起H股变化"的可能性.     

Determinants of Exchange Market Pressure in Turkey: An Econometric Investigation

This paper investigates the hypothesis that there is a causal relation between speculative pressure and real exchange rate overvaluation, banking-sector fragility, and the level of international reserves in Turkey. An autoregressive distributed lag (ARDL) bounds-testing procedure and Granger causality within vector error-correction models (VECM) are applied to the period after the liberalization of capital flows (August 1989-August 2006). The results of the ARDL bounds test support the theory that exchange market pressure is in a long-run equilibrium relation with the three hypothesized variables over the sample period. On the other hand, the results of the short-run and long-run Granger causality tests indicate the existence of Granger causality running from the three variables to exchange market pressure. The findings further suggest that a feedback relation exists between banking-sector fragility and exchange market pressure.     

Price-volume Correlation in the Housing Market: Causality and Co-movements

Housing market cycles are featured by a positive correlation of prices and trading volume, which is conventionally attributed to a causal relationship between prices and volume. This paper analyzes the housing markets in 114 metropolitan statistical areas in the United States from 1990 to 2002, treats both prices and volume as endogenous variables, and studies whether and how exogenous shocks cause co-movements of prices and volume. At quarterly frequency, we find that, first, both home prices and trading volume are affected by conditions in labor markets, the mortgage market, and the stock market, and the effects differ between markets with low and high supply elasticity. Second, home prices Granger cause trading volume, but the effects are asymmetric—decreases in prices reduce trading volume, and increases in prices have no effect. Third, trading volume also Granger causes home prices, but only in markets with inelastic supply. Finally, we find a statistically significant positive price–volume correlation; which, however, is mainly explained by co-movements of prices and volume caused by exogenous shocks, instead of the Granger causality between prices and volume.     

The rolling causal structure between the Chinese stock index and futures

This paper examines the causal structure between daily closing price series of the Chinese stock index and futures from April 16, 2010, the launch date of the futures, to November 14, 2014, through a rolling approach that takes into account window sizes of a half, one, one and a half, and two years. Except for several subperiods associated with the half- and one-year window, the two series are tied together through cointegration and adjust equally toward the long-run relationship. Considering different forecasting lengths, the out-of-sample Granger causality test for each window generally reveals that no series gains forecastability from another. These results shed light on the evolving causal structure between the two series, which is determined to be stable. The futures market, however, has not been fully developed to serve as a price discovery source. Increasing openness of investment channels and policy incentives to attract well-informed traders may stimulate futures market development.     

Herding and excessive risk in the American stock market: A sectoral analysis

This paper aims to test whether herding behavior is a driving force of excessive market volatility and increasing bubbles in the US stock market at a sectoral level. Trading volume turnover and investors’ sentiment are ubiquitous factors besides market return to fuel herding movement in most sectors. Our sample covers all listed companies in the American stock market over four major turmoil periods. Granger causality test shows that herding is a vital ingredient to increasing bubbles in some sectors, but not all. Moreover, herding and trading volume have an inhibiting effect on both overall and in-sector market volatility in large markets, as opposed to concentrated markets commonly studied in the literature.     

Illiquidity,return and risk in G7 stock markets: Interdependencies and spillovers

Trading activity in G7 stock markets reflects not only the macroeconomic and financial impact of these G7 economies in international economic growth, but also their financial interdependence. While this nexus of major stock markets has been explored in terms of volatility and return spillovers, there has been no combined analysis of return, volatility and illiquidity spillovers. We study illiquidity spillovers because they are transmissions of trading activity and, thereof, transmissions of information and market sentiment. We find that the dynamics of international stock markets are characterized by persistent illiquidity and also that illiquidity shocks are significantly correlated across markets. Furthermore, we discover Granger causal associations between risk, return and illiquidity across G7 stock market and also within each stock market. Our findings bear significance for the regulation of international financial markets and also for international portfolio diversification.     

Systemic risk of commodity markets: A dynamic factor copula approach

This study aims to measure the systemic risk of commodity markets and investigate its causal relationship with the macroeconomy. First, we propose a novel measure called the joint probability of abnormal changes (JPAC) to measure the systemic risk of commodity markets. Second, we introduce two new measures, the expected proportion of commodities in abnormal price change (EPAPC) and the contribution to systemic risk (CSR), to identify the systemic importance of each commodity. Third, we examine the relationship between JPAC and some key macroeconomic variables using mixed-frequency Granger causality tests. We conduct an empirical study using 24 commodity indices from 2015 to 2021. Our results reveal that: (1) JPAC can well capture the risk events in the real world; (2) the systemic risk of commodity markets has increased significantly since the start of the US-China trade war; (3) EPAPC and CSR indicate that energy commodities have higher systemic importance than others and are most likely to cause market fluctuations; and (4) some causal relationships between the systemic risk of commodity markets and the macroeconomy are identified. Overall, this study improves our understanding of systemic risk in commodity markets and provides important implications for policymakers in China and the US.     

境内人民币远期与NDF汇率关系

对2006年8月11日至2009年11月30日1月期、3月期、6月期和12月期的远期汇率进行统计和计量分析后发现:金融危机后,境内人民币远期汇率与NDF汇率的总体波动性有所降低,人民币远期汇率弹性有所下降;境内人民币远期市场的定价能力提高主要体现在短期限品种NDF汇率对于境内人民币远期汇率单向引导关系减弱,而二者的相互引导关系增强;长期限品种NDF汇率对于境内人民币远期汇率的引导关系不变。因此后金融危机时期一方面要防范国际资本和政治经济压力对中国汇率的冲击,同时也要择机有序退出临时性汇率安排,稳步推进人民币汇率形成机制改革。     

An examination of the equity market price linkage between Australia and the European Union using leveraged bootstrap method

The paper examines the equity market price interaction between Australia and the European Union – represented by the UK, Germany and France – based on the Toda–Yamamoto causality test, which is bootstrapped with leveraged adjustments. A new information criterion is used to choose the optimal lag order. Weekly MSCI data covering the period 1988 to 2001 is used, divided into two subperiods to allow for a structural break arising from the ERM crisis of 1992. Results show that, during the period before the ERM crisis, no significant causal links exist between Australia and any of three EU countries. During the period after the ERM crisis, Australia also had no causal links with Germany and France but it had with the UK, with causality running from the UK to Australia but not vice-versa. Thus, Australian investors may find the German and French, but not the UK, equity markets, attractive venues for their international diversification. German and French, but not British, investors may also obtain the same benefit from the Australian equity market.