A new vision about the influence of major stock markets in CEEC indices: a bidirectional dynamic analysis using transfer entropy

ABSTRACT

This research work aims to understand the dynamics of influence among CEEC stock market indices and between these and the US, German, UK and Chinese indices. Through a nonlinear approach, based on transfer entropy, we find strongly influential relationships between some CEEC indices and the influencing nature of the US index stands out. In addition to the complexity of causality relationships, which has a limited compatibility with purely linear analyses, we also perceive an intensification in the leadership of the big 4 from the first quarter of 2020, which suggests that the pandemic crisis may be a factor for the intensification of influence from Chinese and US indices.

KEYWORDS:

• Bidirectional influence
• Granger causality
• net transfer entropy
• transfer entropy

Acknowledgments

Paulo Ferreira acknowledges the financial support of Fundação para a Ciência e a Tecnologia (grants UIDB/05064/2020 and UIDB/04007/2020). Andreia Dionísio acknowledges the financial support of Fundação para a Ciência e a Tecnologia (grant UIDB/04007/2020). Derick Quintino acknowledges the financial support of the Coordenação de Aperfeiçoamento de Pessoal de Nível Superior – Brasil (CAPES) –Finance Code 001.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. We made the similar exercise for monthly values of Granger causality and for transfer entropy, with qualitatively similar results. Figures A1 and A2 show the evolution of the monthly mean influence of Germany on the CEEC indices under analysis. Due to space constraints the remaining results are not presented but they will be supplied upon request.

Additional information

Funding

This work was supported by the Fundação para a Ciência e a Tecnologia [grants UIDB/05064/2020 and UIDB/04007/2020]; Coordenação de Aperfeiçoamento de Pessoal de Nível Superior [Finance Code 001].