Nonlinear causality testing with stepwise multivariate filtering : evidence from stock and currency markets
Title: Nonlinear causality testing with stepwise multivariate filtering : evidence from stock and currency markets
Author: BEKIROS, Stelios D.
Publisher: Elsevier Science Inc
Citation: North American journal of economics and finance, 2014, Vol. 29, pp. 336-348
ISSN: 1062-9408; 1879-0860
We examine the spillovers of the US subprime crisis to Asian and European economies and in particular to what extent currency and stock markets have been affected by the crisis. Linear and non-linear dependencies are detected after pairwise and system-wise causality analysis. A new stepwise multivariate filtering approach is implemented after controlling for conditional heteroskedasticity in the raw data and in VAR/VECM residuals using multivariate GARCH models. Significant nonlinear causal linkages persisted even after the application of GARCH-BEKK, CCC-GARCH and DCC-GARCH modelling. This indicates that volatility effects might partly induce nonlinear causality. Perhaps new short-term asset-pricing models could be developed to explain this stylized fact. These results might also have important implications for hedging, trading strategies and financial market regulation.
Subject: Nonlinear filtering; Multivariate GARCH; Spillovers; Autoregressive conditional heteroscedasticity; exchange-rates; generalized arch; volatility; model; cointegration; transmission; variance; linkages; returns
Initial version: http://hdl.handle.net/1814/17581
Version: Published version of EUI ECO WP 2011/22
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