Multivariate Causality between Stock price index and Macro variables: ‎evidence from Canadian stock market

NEIFAR, MALIKA (2021): Multivariate Causality between Stock price index and Macro variables: ‎evidence from Canadian stock market.

Abstract

Currently, the investor considers monetary indicators a vital factor when ‎making any investment in equity prices. This research aim to find the long-‎run relationship between stock returns (DLSP) of Canada and monetary ‎indicators as the exchange rate (LEXC), the interest rate (LINT), and ‎inflation rate (INF). We consider T=232 observations for each variable from ‎January 1999 to April 2018. From the Johansen cointegration approaches, ‎there is no long-run association between stock prices and monetary ‎indicators. Results of the Granger causality tests have demonstrated the ‎unidirectional causation from the stock return to Inflation rate and to ‎Exchange rate growth. While Results of Toda and Yamamoto Wald tests ‎have demonstrated a bidirectional causal relation between stock price and ‎consumer price index and a unidirectional causation from stock price to the ‎interest rate and to the exchange rate growth. Based on IRFs, Inflation rate ‎is shown to be inversely related to stock returns. Thus, it is concluded that ‎the predictability of Canadian stock return relies only on the variations of ‎inflation rate.‎

• Item Type: MPRA Paper
• Language: English
• Keywords: Canadian stock price index; macroeconomic variables; Granger non causality; Johansen ‎cointegration; Toda and Yamamoto non causality wald test, Impulse–response functions ‎‎(IRFs).‎
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy; G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency ; Event Studies ; Insider Trading

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