Multivariate Granger causality between macro variables and KSE 100 index: evidence from Johansen cointegration and Toda & Yamamoto causality

Rizwan Raheem Ahmed, Jolita Vveinhardt, Dalia Streimikiene and Majid Fayyaz

Economic Research-Ekonomska Istraživanja, 2017, vol. 30, issue 1, 1497-1521

Abstract: The pursue of this article is to scrutinise the long-haul relationship between stock returns of the KSE 100 index and monetary indicators such as rate of exchange, inflation, and interest rates. Month-to-month data from the KSE 100 index and monetary variables were extracted for the period January 1992 to November 2015. We transformed the data series into a stationary form by employing the augmented Dickey–Fuller method. The Johansen cointegration approach reinforces the long-haul association between equity prices and monetary indicators, for instance the rate of exchange, inflation, and interest rates. Results of the Granger and Toda and Yamamoto causalities demonstrate the unidirectional causal relationship between interest rate and KSE 100 index; the one-way causation existed from interest rate to equity returns for the KSE100 index. The analysis of the impulse response function concludes that the changes in the KSE 100 index happened due to its own shocks. However, changes in exchange and inflation rates were experienced because of the interest rate. The outcome of variance decomposition demonstrated that most of the changes in the KSE 100 index are because of its own shocks. Thus, it is concluded that the predictability of the equity prices for the KSE 100 heavily relied on exchange rate, inflation, and interest rate variations.

Date: 2017
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/1331677X.2017.1340176 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:reroxx:v:30:y:2017:i:1:p:1497-1521

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/rero20

DOI: 10.1080/1331677X.2017.1340176

Access Statistics for this article

Economic Research-Ekonomska Istraživanja is currently edited by Marinko Skare

More articles in Economic Research-Ekonomska Istraživanja from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().