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In Search of Market Index Leaders: Evidence from World Financial Markets

Canegrati, Emanuele (2008): In Search of Market Index Leaders: Evidence from World Financial Markets.

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Abstract

This paper investigates the presence of Granger-causality amongst world market indices: S&P 500, Dow Jones Industrial Average, Eurostoxx 50, Nikkei, FTSE 100, from January 2nd 1987 to October 17th 2008. Using daily market returns I performed a Granger-causality test, based on the Vector Autoregressive (VAR) model, in order to detect the causalities amongst indices. Different sub-samples were considered, which take into account the distinction between bearish and bullish phases of the markets. Results show that there is high Granger-causality amongst stock returns in every phase of financial markets, but that a real market index leader does not exist, except for Nikkei and Eurostoxx in the third quartile.

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