TESTING FOR LINEAR AND NON-LINEAR GRANGER NON-CAUSALITY HYPOTHESIS BETWEEN STOCK AND BOND: THE CASES OF MALAYSIA AND SINGAPORE

Sheue Li Ong () and Chong Mun Ho ()
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Sheue Li Ong: Faculty of Science and Natural Resources, Universiti Malaysia Sabah, Jalan UMS, 88400 Kota Kinabalu, Sabah, Malaysia

The Singapore Economic Review (SER), 2014, vol. 59, issue 05, 1-18

Abstract: The untested assumption of linear relationship between stocks and bonds in previous empirical studies may lead to an invalid conclusion if the actual relationship is non-linear. The emphasis of this paper is on the effect of non-linearities on causal relationships between stocks and bonds in the cases of Malaysia and Singapore. Results from linearity tests indicate the existence of non-linearities in the dynamic relationship between stocks and bonds. Non-linear causality test results based on Taylor expansion suggest that non-linear causality flows from stocks to bonds and vice versa. The test further confirms that bonds with different maturity dates have different relationships with stocks.

Keywords: Stock and bond; linear; non-linear; causality; Taylor series approximation; C12; C22; G10 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (2)

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DOI: 10.1142/S0217590814500453

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