Testing for Nonlinear Granger Causality in the Price-Volume Relations of Taiwan's Stock and Foreign Exchange Markets

Shyh-Wei Chen and Chun-Wei Chen
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Shyh-Wei Chen: Department of Economics, Tunghai University, Taiwan
Chun-Wei Chen: Department of Economics and Graduate Institute of International Economics, National Chung Cheng University, Taiwan

Journal of Economics and Management, 2006, vol. 2, issue 1, 21-51

Abstract: This paper investigates the price-volume relationships of Taiwan's stock and foreign exchange markets. We first adopt the traditional linear Granger causality test to achieve this goal. In addition, the nonlinearity feature is also taken into account. We employ the nonlinear Granger causality test, championed by Hiemstra and Jones (1994), to detect the nonlinear relationships among stock and foreign exchange markets. The empirical results show that there do exist nonlinear price-volume relationships in Taiwan's stock and foreign exchange markets. The conditional heteroscedasticity feature plays an important role in this nonlinear relationship.

Keywords: stock market; foreign exchange market; nonlinear Granger causality; heteroscedasticity (search for similar items in EconPapers)
JEL-codes: C12 F31 (search for similar items in EconPapers)
Date: 2006
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Persistent link: https://EconPapers.repec.org/RePEc:jec:journl:v:2:y:2006:i:1:p:21-51

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