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http://dx.doi.org/10.29220/CSAM.2018.25.4.397

Causality change between Korea and other major equity markets  

Kwon, Tae Yeon (Department of International Finance, Hankuk University of Foreign Studies)
Publication Information
Communications for Statistical Applications and Methods / v.25, no.4, 2018 , pp. 397-409 More about this Journal
Abstract
The world financial markets are inter-linked in ways that varies according to market and time. We examine the causality of change focusing on the Korean market as related to the U.S. (S&P 500), Japan (Nikkei 225), Hong-Kong (HSI), and European (DAX) markets. In order to capture time-varying causality running from and to the Korea stock market, we apply the Granger causality test under a VAR model with a wild bootstrap rolling-window approach. We also propose a new concept of a significant causality ratio to measure the intensity of the Granger causality in each time unit. There are many asymmetric strengths in mutual Granger causal relationships. Moreover, there are cases with significant Granger causal relations only in one direction. The period with the most severe Granger causality both running from and to the KOSPI market is the GFC. The market that formed the two-way Granger causal relationship with the KOSPI market for the longest period is the S&P 500. The HSI and DAX markets have the strongest two-way Granger causal relationship with the KOSPI shortly after 2000, and the Nikkei market had the strongest two-way Granger causal relationship with the KOSPI market before the Asian financial crisis.
Keywords
Granger causality test; wild bootstrap; rolling-window; significant causality ratio; KOSPI;
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Times Cited By KSCI : 3  (Citation Analysis)
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