Testing causal relation among central and eastern European equity markets: evidence from asymmetric causality test

An earlier version of this paper was presented at the 49th Annual MBAA International Conference, Chicago, USA, 27 February–1 March 2013.

Figures & data

Figure 1. Log of Price Index and Positive and Negative Cumulative Sums. Source: MSCI-Barra and authors’ calculation.

Note: (+) indicates positive cumulative sums and (−) indicates negative cumulative sums.

Table 1. Descriptive Statistics for Returns Series.

Countries	n	Mean (%)	Maximum	Minimum	Std. Dev.	Skewness	Kurtosis
Czech Republic	234	0.589	26.295	−34.877	8.414	−0.608	4.895
Hungary	234	0.626	37.950	−56.826	11.223	−1.049	7.318
Poland	234	0.367	33.931	−42.980	10.570	−0.474	4.885
Turkey	234	0.683	54.408	−53.177	14.835	−0.286	4.658
Germany	234	0.484	20.204	−27.908	6.939	−0.914	5.145

Source: Authors’ calculation.

Table 2. Correlations among Stock Returns Series.

Countries	Czech Republic	Hungary	Poland	Turkey	Germany
Czech Republic	1.000
Hungary	0.699***	1.000
Poland	0.689***	0.763***	1.000
Turkey	0.421***	0.536***	0.467***	1.000
Germany	0.543***	0.652***	0.658***	0.522***	1.000

Note:

*** indicates significant correlation coefficient at the 1% level.

Source: Authors’ calculation.

Table 3. Unit Root Test Results.

Countries	Level		First Differences
	ADF	PP	ADF	PP
Czech Republic	−1.218	−1.301	−13.727***	−13.705***
Hungary	−1.881	−2.008	−13.888***	−13.895***
Poland	−2.528	−2.517	−15.465***	−15.472***
Turkey	−3.014	−3.203	−15.141***	−15.141***
Germany	−2.347	−2.637	−14.245***	−14.262***

Note:

The optimal number of lags is selected according to the Schwarz BIC.

*** indicates that the series in question is stationary at the 1% significance level.

Source: Authors’ calculation.

Table 4. Zivot–Andrews Structural Break Test Results.

Countries	Test Statistics		Break Periods
	Model A	Model C	Model A	Model C
Czech Republic	−3.078	−3.206	2003M08	2004M08
Hungary	−3.240	−3.781	2008M08	2004M08
Poland	−4.096	−4.017	2004M09	2004M09
Turkey	−3.962	−4.004	2004M06	2000M11
Germany	−3.043	−3.037	2001M02	2000M04

Note:

−4.58, −4.80 and −5.43 are critical values for Model A at 10, 5 and 1% significance levels respectively. −4.820, −5.08 and −5.57 are critical values for Model C at 10, 5 and 1% significance levels respectively. ***, ** and *indicate that the series in question is stationary at the 1, 5 and 10% significance level, respectively.

Source: Authors’ calculation.

Table 5. Hatemi-J Asymmetric Causality Test Results among CEE Equity Markets.

Causality Direction	Test Value	VAR order	CV 1%	CV 5%
Czech Republic → Hungary	3.113	1	6.663	3.960
Czech Republic^+ → Hungary^+	5.040**	1	6.945	3.822
Czech Republic^− → Hungary^−	0.718	1	8.254	3.916
Hungary → Czech Republic	0.003	1	6.453	3.747
Hungary^+ → Czech Republic^+	0.156	1	7.313	3.955
Hungary^− → Czech Republic^−	0.074	1	9.310	4.128
Czech Republic → Poland	5.679**	1	6.699	3.976
Czech Republic^+ → Poland^+	5.083**	1	7.294	3.894
Czech Republic^− → Poland^−	3.318	1	7.558	3.998
Poland → Czech Republic	0.056	1	6.408	3.697
Poland^+ → Czech Republic^+	0.305	1	6.599	3.806
Poland^− → Czech Republic^−	0.182	1	8.222	4.092
Czech Republic → Turkey	0.308	1	6.852	3.983
Czech Republic^+ → Turkey^+	0.119	1	7.012	3.993
Czech Republic^− → Turkey^−	0.526	1	8.412	4.162
Turkey → Czech Republic	0.155	1	6.671	3.831
Turkey^+ → Czech Republic^+	1.084	1	7.194	3.928
Turkey^− → Czech Republic^−	1.535	1	7.964	3.963
Hungary → Poland	1.666	1	6.902	3.979
Hungary^+ → Poland^+	0.001	1	7.106	3.761
Hungary^− → Poland^−	1.272	1	8.306	4.016
Poland → Hungary	0.523	1	7.106	3.934
Poland^+ → Hungary^+	1.271	1	6.924	3.873
Poland^− → Hungary^−	0.040	1	8.391	4.000
Hungary → Turkey	2.482	1	6.538	3.826
Hungary^+ → Turkey^+	0.082	1	7.102	3.913
Hungary^− → Turkey^−	1.964	1	9.015	4.090
Turkey → Hungary	0.021	1	6.884	3.838
Turkey^+ → Hungary^+	0.129	1	7.031	3.972
Turkey^− → Hungary^−	0.004	1	8.359	3.933
Poland → Turkey	4.837**	1	6.879	3.761
Poland^+ → Turkey^+	2.352	1	7.129	4.043
Poland^− → Turkey^−	1.652	1	8.003	4.041
Turkey → Poland	2.238	1	6.743	3.824
Turkey^+ → Poland^+	0.165	1	7.136	3.943
Turkey^− → Poland^−	0.556	1	8.164	4.090

Note:

‘⁺’ and ‘⁻’ indicate upside and downside causality relations, respectively. *, ** and *** indicate the existence of causal link at the 1, 5 and 10% level, respectively.

Source: Authors’ calculation.

Table 6. Hatemi-J Asymmetric Causality Test Results between Germany and CEE Equity Markets.

Causality Direction	Test Value	VAR order	CV 1%	CV 5%
Germany → Czech Republic	0.703	1	6.753	3.915
Germany^+ → Czech Republic^+	1.989	1	7.532	3.975
Germany^− → Czech Republic^−	1.324	1	7.955	3.813
Czech Republic → Germany	2.838	1	7.291	3.988
Czech Republic^+ → Germany^+	2.911	1	7.125	3.995
Czech Republic^− → Germany^−	1.035	1	8.628	4.218
Germany → Hungary	2.820	1	7.007	3.910
Germany^+ → Hungary^+	1.841	1	6.847	3.862
Germany^− → Hungary^−	3.421	1	8.281	3.945
Hungary → Germany	0.293	1	6.992	4.011
Hungary^+ → Germany^+	0.000	1	7.058	3.901
Hungary^− → Germany^−	0.529	1	8.098	3.906
Germany → Poland	0.870	1	7.001	4.067
Germany^+ → Poland^+	0.044	1	6.874	3.935
Germany^− → Poland^−	3.493	1	7.822	3.875
Poland → Germany	1.677	1	6.808	3.899
Poland^+ → Germany^+	0.658	1	6.609	3.983
Poland^− → Germany^−	1.727	1	7.135	3.879
Germany →Turkey	2.040	1	6.739	3.857
Germany^+ →Turkey^+	0.386	1	6.732	3.897
Germany^− →Turkey^−	1.530	1	7.201	3.928
Turkey → Germany	0.216	1	6.723	3.900
Turkey^+ → Germany^+	0.152	1	7.062	3.938
Turkey^− → Germany^−	0.065	1	7.302	4.077

Note:

‘+’ and ‘−’ indicate upside and downside causality relations, respectively. *, ** and *** indicates the existence of a causal link at the 1, 5 and 10% level, respectively.

Source: Authors’ calculation.