The Impact of US Dollar Index on Emerging Stock Markets: A Simultaneous Granger Causality and Rolling Correlation Analysis

Abstract

Since the famous tapering talk of Bernanke, US Dollar (USD) made a significant appreciation on emerging market local currencies. When the stock indices are adjusted to USD, a negative relationship is usually the case. USD index is a natural candidate for measurement of these effects. It is seen that some emerging stock indices exhibit negative causality with USD index in Granger sense. Moreover, the authors take into account rolling correlations of USD index and the relevant stock indices and examine them on the investment horizon beginning from tapering talk. The authors deduce that Granger causality test and correlation results are coherent with each other which sheds light to the famous discussion whether causality implies correlation or vice versa.

Citation

Ilalan, D. and Pirgaip, B. (2019), "The Impact of US Dollar Index on Emerging Stock Markets: A Simultaneous Granger Causality and Rolling Correlation Analysis", Biswas, R. and Michaelides, M. (Ed.) Essays in Financial Economics (Research in Finance, Vol. 35), Emerald Publishing Limited, Leeds, pp. 145-154. https://doi.org/10.1108/S0196-382120190000035007