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1 – 10 of over 2000
Book part
Publication date: 19 December 2012

Tae-Hwy Lee and Weiping Yang

The causal relationship between money and income (output) has been an important topic and has been extensively studied. However, those empirical studies are almost entirely on…

Abstract

The causal relationship between money and income (output) has been an important topic and has been extensively studied. However, those empirical studies are almost entirely on Granger-causality in the conditional mean. Compared to conditional mean, conditional quantiles give a broader picture of an economy in various scenarios. In this paper, we explore whether forecasting conditional quantiles of output growth can be improved using money growth information. We compare the check loss values of quantile forecasts of output growth with and without using past information on money growth, and assess the statistical significance of the loss-differentials. Using U.S. monthly series of real personal income or industrial production for income and output, and M1 or M2 for money, we find that out-of-sample quantile forecasting for output growth is significantly improved by accounting for past money growth information, particularly in tails of the output growth conditional distribution. On the other hand, money–income Granger-causality in the conditional mean is quite weak and unstable. These empirical findings in this paper have not been observed in the money–income literature. The new results of this paper have an important implication on monetary policy, because they imply that the effectiveness of monetary policy has been under-estimated by merely testing Granger-causality in conditional mean. Money does Granger-cause income more strongly than it has been known and therefore information on money growth can (and should) be more utilized in implementing monetary policy.

Article
Publication date: 17 August 2018

Narinder Pal Singh and Sugandha Sharma

The purpose of this paper is to investigate the dynamic relationship among Gold, Crude oil, Indian Rupee-US Dollar and Stock market-Sensex (gold, oil, dollar and stock market…

Abstract

Purpose

The purpose of this paper is to investigate the dynamic relationship among Gold, Crude oil, Indian Rupee-US Dollar and Stock market-Sensex (gold, oil, dollar and stock market (GODS)) in the pre-crisis, the crisis and the post-crisis periods in the Indian context.

Design/methodology/approach

The authors use Johansen’s cointegration technique, Vector Error Correction Model (VECM), Vector Auto Regression, VEC Granger Causality/Block Exogeneity Wald Test, and Granger Causality and Toda Yamamoto modified Granger causality to study long-run relationship and causality.

Findings

Johansen’s cointegration test results indicate that there is a long-run equilibrium relationship among the variables in the pre-crisis and the crisis periods but not in post-crisis period. VECM results report that none of four models of the variables show long-run causality in the pre-crisis period. During the crisis period, both crude oil and Sensex models show long-run causality. However, in some cases, results indicate short-run causality. The authors find one-way causality from USD and Sensex to crude oil, and from gold and Sensex to USD. Thus, the authors conclude that the relationship among GODS is dynamic across global financial crisis.

Practical implications

The research findings of this study are vital to the large group of stakeholders and participants of gold, crude oil, US dollar and stock market in emerging economies like India. The results are useful to importers, exporters, government, policy makers, corporate houses, retail investors, portfolio managers, commodity traders, treasury and fund managers, other commercial traders, etc.

Originality/value

This study is one of its kinds as it investigates the relationship among GODS in India in different sub-periods like before, during and after the global financial crisis of 2008. None of the studies compare phase-wise relationship among GODS in the Indian context. The study contributes to the economic theory and the body of knowledge. It highlights the need to revisit the economic theory to explain the interplay mechanism among GODS.

Details

Journal of Advances in Management Research, vol. 15 no. 4
Type: Research Article
ISSN: 0972-7981

Keywords

Article
Publication date: 3 October 2016

Anni Tuppura, Heli Arminen, Satu Pätäri and Ari Jantunen

The purpose of the paper is to examine empirically Granger causality relationships between corporate social performance (CSP) and corporate financial performance (CFP) in four…

1209

Abstract

Purpose

The purpose of the paper is to examine empirically Granger causality relationships between corporate social performance (CSP) and corporate financial performance (CFP) in four different industries.

Design/methodology/approach

The paper uses the Granger causality test to analyse the causality relationships between CSP and CFP in clothing, energy, food and forest industries in the USA. The panel data used combined CSP and CFP measures over the years 1991-2009. CSP strengths and concerns are handled as distinct constructs.

Findings

There is some evidence of bidirectional causality between CSP and CFP in the clothing, energy and forest industries; but in the food industry, CSP appears not to Granger-cause CFP. The results encourage accounting for the industry in empirical analyses, as well as the use of more than one measure for CFP in the analyses.

Originality/value

The direction of causality between CSP and CFP has been specifically addressed in only a few studies. Because the causality relationship may, in addition, be concealed when multi-industry data are used, this paper contributes to the literature by examining the Granger causality between CSP and CFP in four different industry contexts using two different measures of CFP.

Details

Social Responsibility Journal, vol. 12 no. 4
Type: Research Article
ISSN: 1747-1117

Keywords

Book part
Publication date: 24 October 2019

Deniz Ilalan and Burak Pirgaip

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…

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.

Article
Publication date: 1 June 1997

Abdul M.M. Masih, Rumi Masih and Mohammad S. Hasan

Proposes to re‐examine empirically the causal relationship between defence spending and economic growth in mainland China. First, using a VAR modelling technique with suitable…

1089

Abstract

Proposes to re‐examine empirically the causal relationship between defence spending and economic growth in mainland China. First, using a VAR modelling technique with suitable diagnostics, e.g. Akaike’s FPE statistics and a likelihood ratio test for over‐ and under‐fitting the causal model, the results indicate a positive unidirectional causality flowing from defence spending to economic growth. Second, by evaluating a dynamic vector error‐correction model, variance decomposition and impulse response functions, then analyses the direction, duration and strength of Grangercausality between defence spending and economic growth. The results broadly indicate that defence spending and economic growth did share a common trend over the sample period under analysis, but it was the former which stimulated the latter. Moreover, it is defence spending that has a much more perceptible and prolonged effect on economic growth, giving rise to implications that although expenditure on defence may have been politically motivated, over the long‐run this spending did play a significant indirect role in enhancing the growth potential of this, for many years, closed‐door economy.

Details

Journal of Economic Studies, vol. 24 no. 3
Type: Research Article
ISSN: 0144-3585

Keywords

Article
Publication date: 12 September 2008

Vincent Omachonu, William C. Johnson and Godwin Onyeaso

The purpose of this paper is to investigate whether customer‐perceived service quality and expectation of service quality have causal impacts on overall customer satisfaction.

3130

Abstract

Purpose

The purpose of this paper is to investigate whether customer‐perceived service quality and expectation of service quality have causal impacts on overall customer satisfaction.

Design/methodology/approach

Data on all the variables were elicited from the American Customer Satisfaction Index (ACSI), and these were analyzed using the Granger causality method.

Findings

Satisfaction and perceived quality were positively related. Even though perceived quality did not Granger‐cause satisfaction in the short term, it did so in the long term. Likewise, even though satisfaction did not Granger‐cause perceived quality in the short term, it did so in the long term. But customer expectations Granger‐caused both satisfaction and expectation in the short‐term and the long term.

Research limitations/implications

The findings are based on only one company. Extrapolation to other companies demands caution and the data may not satisfy asymptotic assumptions.

Originality/value

The study contributes to the literature by advising managers to extend their customer satisfaction tracking to overall customer satisfaction with its strategic implications.

Details

Journal of Services Marketing, vol. 22 no. 6
Type: Research Article
ISSN: 0887-6045

Keywords

Book part
Publication date: 23 June 2016

Eric Renault and Daniela Scidá

Many Information Theoretic Measures have been proposed for a quantitative assessment of causality relationships. While Gouriéroux, Monfort, and Renault (1987) had introduced the…

Abstract

Many Information Theoretic Measures have been proposed for a quantitative assessment of causality relationships. While Gouriéroux, Monfort, and Renault (1987) had introduced the so-called “Kullback Causality Measures,” extending Geweke’s (1982) work in the context of Gaussian VAR processes, Schreiber (2000) has set a special focus on Granger causality and dubbed the same measure “transfer entropy.” Both papers measure causality in the context of Markov processes. One contribution of this paper is to set the focus on the interplay between measurement of (non)-markovianity and measurement of Granger causality. Both of them can be framed in terms of prediction: how much is the forecast accuracy deteriorated when forgetting some relevant conditioning information? In this paper we argue that this common feature between (non)-markovianity and Granger causality has led people to overestimate the amount of causality because what they consider as a causality measure may also convey a measure of the amount of (non)-markovianity. We set a special focus on the design of measures that properly disentangle these two components. Furthermore, this disentangling leads us to revisit the equivalence between the Sims and Granger concepts of noncausality and the log-likelihood ratio tests for each of them. We argue that Granger causality implies testing for non-nested hypotheses.

Article
Publication date: 5 October 2020

Isaac Cliford Queku, Seth Gyedu and Emmanuel Carsamer

The purpose of the paper is to investigate the causal relationships and speed of adjustment of stock prices to changes in macroeconomic information (MEI) in Ghana from 1996 to…

Abstract

Purpose

The purpose of the paper is to investigate the causal relationships and speed of adjustment of stock prices to changes in macroeconomic information (MEI) in Ghana from 1996 to 2018 using monthly data. The paper seeks to conduct the investigation at individual MEI level rather than the composite MEI.

Design/methodology/approach

Quantitative approach was used in this paper. Monthly data span of 1996–2018 was used. The delay and half-life technique was used to determine the speed with which the information resulting from the changes in the macroeconomic are evident in the stock price. Thereafter, Toda–Yamamoto Granger no-causality approach was used to examine the causal relationship amongst variables.

Findings

The paper revealed that although the market adjustment to MEI has improved, the speed is till slow. The exchange rate exhibited the slowest speed in respect of the market reaction while the market reaction to money supply was the fastest. Toda–Yamamoto Granger no-causality estimation also revealed a bi-directional causality between MEI (gross domestic product, interest rate and money supply) and stock price and uni-directional relationship flowing from MEI (the exchange rate and foreign direct investment) to stock price. The paper also found no causality between inflation and stock price.

Research limitations/implications

The findings although revealed improved level of market efficiency in comparison with the earlier data, the speed of adjustment is still undesirable. Rigorous approach should be adopted for the implementation of major reforms such as alternative market so as to increase the number of share listing and to increase the scope of investors' participation to enhancing trading volume and marketability and ultimately speed up information diffusion.

Practical implications

The practical implication of the low level of information processing rate of Ghana Stock Exchange (averagely more than a month) is that astute investors and market analysts could employ MEI to outperform the market prior to their infusion onto the stock market.

Originality/value

This study is one of the few studies in the Ghanaian literature that has extended the investigation of the speed of adjustment beyond composite or aggregate macroeconomic level estimation to estimation at individual variable level. This contribution is very relevant since each macroeconomic variable has unique characteristics and require specific policy framework, it is important to consider the speed of adjustment from the perspective of each of the individual variables.

Details

International Journal of Emerging Markets, vol. 17 no. 1
Type: Research Article
ISSN: 1746-8809

Keywords

Article
Publication date: 11 June 2020

Ahmed A. El-Masry and Osama M. Badr

This paper examines the causal relationship between stock market performance and foreign exchange market in Egypt over the period 2009–2016. The study period is divided into two…

1296

Abstract

Purpose

This paper examines the causal relationship between stock market performance and foreign exchange market in Egypt over the period 2009–2016. The study period is divided into two sub-periods: pre- and post-January 25th Egyptian revolution (ER). The reason is to examine how this revolution affects the causal relationship between the two markets' performance.

Design/methodology/approach

In this study, the daily basis data are used to enable good and effective observation changes in the foreign exchange rate and stock market performance over time. Stock market indexes and stock market capitalization are used as proxies for stock market performance. Further, the Egyptian pound to US$ exchange rate is used as a measure for foreign exchange market performance. The study analysis is done in stages. The first is to check the variables' stationarity for the pre- and post-revaluation. The second is to examine the cointegration among the variables. The third is to run vector autoregression (VAR) estimates, after which VAR Granger causality tests are employed.

Findings

The results show that the data are not stationary at their levels but stationary in their first difference level while there is no cointegration in the long-run among the variables in both sub-periods. Further, findings indicate that, in the pre-January 25th revolution period, there is a significant causal relationship between the foreign exchange market and stock market indexes and a significant causal relationship between market capitalization (CAP) and exchange rate at the 1% level. However, in the post-January 25th revolution period, the study does not find a significant causal relationship between foreign exchange market and stock market indexes and capitalization.

Research limitations/implications

As this study focuses on the causal relationship between foreign exchange and stock markets before and after the 25th January Revolution, other macroeconomic variables such as consumer price index, interest rate and GDP were excluded for the comparison purposes with other studies. Further research is suggested to include them in the analysis to find out its effect on the performance of stock market and foreign exchange market.

Practical implications

The existence of long-run bidirectional causality means that portfolio managers and hedgers may have improved their understanding regarding the dynamic relationship between foreign exchange market and stock market performance as this may help them to plan and implement suitable hedging strategies to guard against currency risk in future crises or events. Investors, fund and portfolio managers and policymakers should give much attention to these event-specific interactions when they make capital budgeting decisions and implement regulation policies. Furthermore, our results may allow portfolio managers, investors and policymakers to assess the importance of informational efficiency for both markets.

Originality/value

This paper is an original contribution to the literature that concerns the causal relationship between stock market and foreign exchange market in the period of political instability and social unrest such as the January 25th Revolution in one of the emerging markets, namely Egypt.

Article
Publication date: 5 October 2012

Abhijeet Chandra

The purpose of this paper is to examine the direction of causality between foreign institutional investment (FII) trading volume and stock market returns in the Indian context…

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Abstract

Purpose

The purpose of this paper is to examine the direction of causality between foreign institutional investment (FII) trading volume and stock market returns in the Indian context. There is evidence of uni‐directional causalities from stock returns to FII flows across various sample periods. The paper attempts to establish whether net FII trading volume causes variations in stock market returns or vice versa.

Design/methodology/approach

Using daily data on three different measures of FII trading volume as proxy for FII trading behaviour and S&P CNX Nifty returns, Grangercausality approach is applied to investigate the bi‐directional causality between net FII trades and returns.

Findings

Bi‐directional causality between net FII investment and Indian stock market return is observed. In general, the FIIs seem to be chasing the Indian stock market returns. It is found that FII trading behaviour resulting in heavy trading volumes may cause variations in stock market returns only in the very short‐term, but afterwards, it is the stock market returns which cause changes in FII trading behaviour.

Research limitations/implications

Since foreign equity investors monitor the movement of stock prices, and furthermore, the role of FIIs' exerting impact on Indian stock markets tends to be growing, the authorities will have to develop an environment where FIIs would maintain their positions with confidence, thereby making the markets, as well as investments, more stable. This research considered only stock market returns to test its relationship with three measures of FII trading volume; more macroeconomic as well as microeconomic variables may further be considered for the purpose.

Originality/value

The paper contributes some empirical evidence using three different measures of FII trading volume as proxy of FII trading behaviour, and its bi‐directional relationship with Indian stock market returns.

1 – 10 of over 2000