9
X
https://doi.org/10.22214/ijraset.2021.38381
October 2021
International Journal for Research in Applied Science & Engineering Technology (IJRASET) ISSN: 2321-9653; IC Value: 45.98; SJ Impact Factor: 7.429 Volume 9 Issue X Oct 2021- Available at www.ijraset.com
Are Asian Markets and Developed Markets Interlinked? An Application of Causality Approaches Dr. Archana Dixit1, Dr. Hemant Shrotiya2, Dr. Abhinandan Ravsaheb Patil3, Mrs. Simran Jain4 1
2
Assistant professor, Bharat group of institution, Kachiguda Hyderabad 500027, India Assistant professor, GNIT College of Management, Plot No, 6C, Distt, Knowledge Park II, Greater Noida, Uttar Pradesh 201310, India 3 Assistant Professor at School of Pharmacy at Sanjay Ghodawat University Kolhapur - Sangli Hwy, A/p, Atigre, Maharashtra 416118, India. 4 (Research Scholar) Lecturer, Bharat group of institution, Kachiguda Hyderabad 500027, India.
Abstract: This paper examined the relationship between the stock market returns for three Asian countries and three developed countries. It Investigate two way causality among exchange rate, inflation rate, GDP, with stock returns of the sample countries. This paper examines long term and short term co movement of stock indices of stock market. To check the stationary this study apply unit root test, OLS test and found that data is stationary. This study used ADF test with and without intercept till data become intercept till the data become stationary. The data series is stationary at i(1) and 2 difference and intercept level as presented in above tables. The P value of ADF test in India GDP value is 0.0006, India exchange rate is 0.0002, and Indian stock return is 0.0001 which are less than 5%. It means data series is stationary. Bangladesh exchange rate is 0.0004, inflation rate is 0.0001, stock returns 0.0004. Also predicting the value of ADF test equation the coefficient value ids negative in all cases suggesting that the model is fit.. To investigate the causality The Granger causality test was applied to check the causal relationship between the variables and found that hypothesis is not rejected so there is no causality between the variable. I. INTRODUCTION Third largest economy in the world is Indian economy in terms of purchasing power. As given by Goldman Sachs, the global investment bank, by 2035. India would be the third largest economy of the world just after the US, and China. From 2010 to till now Malaysia is the most open economy in the world related to trade. From 2010 to till now, Malaysia's average growth is 5.4%. Three pillars of Bangladesh growth is export, social progress and fiscal prudence. Its export grows at 8.6% every year compare to world's average of 0.4% this country mostly focused on products growths. The US economy is a highly developed or mixed economy. It has the second largest purchasing power parity compared to the world. It has the seventh highest per capita income. We can say it is the most powerful technical economy in the world. US is the world largest exporter and second largest importer. UK is the fifth largest country in purchasing power parity (PPP) and ninth largest national economies in the world by nominal gross domestic product and fifth largest by). It is the most globalised economy. It is fifth largest importer as well as exporter. London is the second largest financial center in the world. Looking to growth prospects and importance of economy, we decided to take theses country basically this study examines the relationship between Asian and developed countries and the variable for the study is stock return, exchange rate inflation rate GDP. For economists, policy maker and even the investors, it is important to know the factors that influence the behavior of stock price with changing the other economic variables. It will basically help policy makers, forecasting about the stock market and exchange rate is very important to make decisions about the fiscal and monetary policy. It will help regulators to know about currency and equity market relationship is helpful in forecasting the future crisis. This study aim to establish long term relationship between stock return, inflation rate, GDP, exchange rate, between Asian countries and developed countries. This study applies to unit root test OLS test Granger causality test. If stock prices and macroeconomic variable are eminently related and causation runs from microeconomic variable to stock prices than crises in stock markets can be intercept by controlling fluctuations in macroeconomic variables (exchange rate inflation rate GDP )
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International Journal for Research in Applied Science & Engineering Technology (IJRASET) ISSN: 2321-9653; IC Value: 45.98; SJ Impact Factor: 7.429 Volume 9 Issue X Oct 2021- Available at www.ijraset.com II. LITERATURE REVIEW Mukherjee and Mishra (2005) authors found a long run relationship among Indian stock market and other Asian stock market. They apply Johansen Co-integration test on Asian group of countries. Tripathy (2006) found that all over world market impact on developed market and moreover they found that world stock market co integrated with developed market and there is longer equilibrium relationship Chittedi (2010) Author applied Granger causality test to find the relationship between Developed countries stock market. Author found Unidirectional Causal Influence between Indian stock market, US stock market, Japan, Finance. Aloui and Kkiri.(2010) Authors apply a wavelet approach to examine the relationships among the returns of GCC (Gulf Cooperation council ) they found strong dependency exists among the considered market. Modi (2010) author found US investor has good portfolio diversification potential with Hong Kong, russia, India after applying Granger causality test they examined the relationship between developed countries and develop country stock market Tripathi and Sethi (2010) examined the co- integration of the Indian stock market with Japan stock market. They used the Granger causality test to analyze the relationship between Indian stock market and the Japanese stock market. Authors found the results that there is no long run relationship. Gregorio and Guidotti (1995) Author found Efficient of investment instead of volume of investment as the major determinant for economic growth Abd ,Majid (2005) Author apply Co integration test among Japan and US stock market and found stock markets moving towards a greater integration among the Japanese and US stock markets. Gogineni (2010) found that in addition to the stock returns of industries that depend heavily on Oil and some industries stock return. Tsuji (2012) author apply co integration test and evaluate data from 2001 to 2005, found no causal relationship between the japans markets gradually relationship among the stock market of seven-advance market examined the relationship between stock return of Japan. (Ajayi et al, 1998) Author found the result that there is empirical evidence that the correlation of stock return between the Japanese markets gradually increased. Further study found no causal relationship among the stock market of seven-advance market. He examined the relationship for seven-advance market. Authors applied Granger causality test to analysis the data for the year 1985 to 1991. Samadder and Amalendu (2018). This study examines the long run and short run relationship with Indian stock market and developed stock markets this study is based on time series and time taken from 2001 to 2016. Study applied Johansen co integration test, Granger Causality test it found that Indian stock market and USA stock market are associated in the long run Gupta .L and Shrivatava. R ( 2018 ) this study examine the relationship between India and Japan Study applied Johansen co integration test, Granger Causality test it found that, There is co integration between NSE and TSE C .Pornpiun (2017) the study examine the international transmission of volatility in the stock markets of countries time taken for study is two decade and author found that there is strong financial integration during the clam periods. Agmon, T.(1972). This paper examines the relationship between equity market of United States and United Kingdom and found that there is long term relationship between the given markets. Janakiramanan, s & Lamba, S A. (1998) this paper examine the linkage between the stock market in the pacific basic region , the time duration for study is 1988 to 1996, study apply vector auto regression model and found that The US market influences all other Australasian markets except Indonesia and none of these markets expert a significant influence on the US market III. OBJECTIVES OF THE STUDY The objective of the study is to analyses the causality and co integration between Asian country and developed countries. The objective of the study is following A. To calculate the stock market returns for three Asian countries and three developed countries B. To investigate two way causality among exchange rate, inflation rate, GDP, with stock returns of the sample countries. C. To examine long term and short term co movement of stock indices of stock market D. To open new vistas for further research.
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International Journal for Research in Applied Science & Engineering Technology (IJRASET) ISSN: 2321-9653; IC Value: 45.98; SJ Impact Factor: 7.429 Volume 9 Issue X Oct 2021- Available at www.ijraset.com IV. RESEARCH METHODOLOGY A. Unit root Test There are several test available to check the stationary of the data, unit root is applied on the time series index data. This study prefers ADF Test. In this study to examine and make the series stationary of GDP, inflation rate , exchange rate , stock return The Augmented Dickey-fuller (ADF) unit root test was applied The test consist the following procedure for the ADF test. ------------ [1] Where, is a constant, the coefficient on a time trend and the lag order of the autoregressive process. Imposing the constraints and corresponds to modeling a random walk and using the constraint corresponds to modeling a random walk with a drift. Consequently, there are three main versions of the test, analogous to the ones discussed on dickey fuller test (seismic time trend terms in the test equation [3].) By including lags of the order p the ADF formulation allows for higher-order autoregressive processes. This means that the lag length p has to be determined when applying the test. B. Ordinary Least Squares (OLS) It is types of linear least squares method for estimating unknown parameter in linear regression model with a goal of minimizing the differences between the observed responses in some arbitrary dataset and the response predicted by linear approximation of the data. The single regression resulting estimator can be expressed by a simple formula, especially in the case of an on the right-hand side. C. Granger Causality test It is first proposed in 1969. It is statically hypothesis test to examine whether one time series is useful for forecasting another’s, This test is performed using the level values of two or more variables. If The variables are non stationary, then the test is Done using first differences. Under the Granger causality the number of lags to be included is usually chosen using an information criterion, such as the Akaike information criterion or Schwarz information criterion. Any particular lagged value of one of the variables is retained in the regression if (1) it is significant according to a t-test, and (2) it and the other lagged values of the variable jointly add explanatory power to the model according to an F-test. Then the null hypothesis of no Granger causality is not rejected if and only if no lagged values of an explanatory variable have been retained in the regression. The Granger method involves the estimation of the following equations:
.
(2) V.
EMPIRICAL ANALYSIS OF DATA Figure 1 Graphical analysis of Asian countries Bangladesh
bex bgdp
88 84
68
09
10
11
12
13
14
15
16
17
18
19
Exchange rate
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11,000
10
7.0
72
12,000
11
7.5
76
13,000
12
8.0
80
bstret
binf
8.5
10,000
9
6.5
8
9,000
6.0
7
8,000
5.5
6
7,000
5.0
5
09
10
11
12
13
GDP
14
15
16
17
18
19
09
10
11
12
13
14
15
16
17
18
19
6,000
09
Inflation rate
10
11
12
13
14
15
16
17
18
19
stock return
377
International Journal for Research in Applied Science & Engineering Technology (IJRASET) ISSN: 2321-9653; IC Value: 45.98; SJ Impact Factor: 7.429 Volume 9 Issue X Oct 2021- Available at www.ijraset.com India inex
ingdp
75
ininf
9
14 instret
70 8
65
12
40,000
10
36,000
7
60
32,000
8 6
55
28,000
6 24,000
5
50 45
09
10
11
12
13
14
15
16
17
18
4
4
19
09
10
11
Exchange rate
12
13
14
15
16
17
18
19
2
20,000
09
10
11
12
13
14
15
GDP
16
17
18
16,000
19
09
10
11
12
13
14
Inflation rate
15
16
17
18
19
stock return
Malaysia mex
mstret
minf mgdp
4.4 8
4.2
2,000
4.0
1,900
3.5
1,800 4.0
3.0
6
3.8
1,700
2.5
4
3.6
1,600
2.0
1,500
2
3.4
1.5 0
3.2 3.0
09
10
11
12
13
14
15
16
17
18
-2
19
1,400
1.0 0.5 09
10
11
Exchange rate
12
13
14
15
16
17
18
19
1,300 09
10
11
12
13
14
15
GDP
16
17
18
1,200
19
09
10
11
12
13
14
Inflation rate
15
16
17
18
19
stock return
The figures is given above is indicating Asian countries regarding exchange rate, Inflation rate, GDP, Stock return all are showing fluctuation on regular basic.
Figure 2 Graphical analysis of Developed countries Japan jstret jinf
jgdp 3
22,000
4
2
20,000
2
1
6
jex 130 120
24,000
18,000
110
16,000
0
14,000
0
100
-2
90 80
-4
70
-6 09
10
11
12
13
14
15
16
17
18
19
12,000 -1
09
10
11
Exchange rate
12
13
14
15
16
17
18
19
-2
10,000 09
10
11
12
13
14
15
GDP
16
17
18
19
8,000
09
10
11
12
13
14
Inflation rate
15
16
17
18
19
stock return
UK ukinf
ukgdp ukex 1.70 1.65 1.60
3
4.0
2
3.5
1
3.0
0
2.5
-1
2.0
1.45
-2
1.5
1.40
-3
1.0
-4
0.5
1.55 1.50
1.35 1.30 1.25
-5 09
10
11
12
13
14
15
16
17
18
19
Exchange rate
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09
10
11
12
13
GDP
14
15
16
17
18
19
0.0
ukstret 9,000 8,000 7,000 6,000 5,000
09
10
11
12
13
14
15
16
17
18
Inflation rate
19
4,000
09
10
11
12 13
14
15
16
17
18 19
stock return
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International Journal for Research in Applied Science & Engineering Technology (IJRASET) ISSN: 2321-9653; IC Value: 45.98; SJ Impact Factor: 7.429 Volume 9 Issue X Oct 2021- Available at www.ijraset.com US usstret
usinf usgdp
9,000
3.2
3
2.8
2
2.4
8,000
2.0
1
7,000
1.6
0
1.2
-1
0.8
6,000
0.4 -2 -3
5,000
0.0 09 10 11
12 13 14 15
16 17
18 19
-0.4
09
GDP
11
12
13
14
15
16
17
18
19
4,000
09 10 11 12 13 14 15 16 17 18 19
Inflation rate VI.
Countries
10
stock return
ANALYSIS AND RESULTS
Table I Results of ADF test Inflation rate Exchange rate Const Intri pro Const Int pro ri I(2) 0.00 -5.307 I(2 0.000 2.92436 86 ) 2
GDP Const
Intri
pro
India
-3.170500
I(2)
0.00 60
Malaysia
-8.10577
I(2)
0.00 16
-6.6921
I(2)
0.00 50
-3.9658
I(2 )
0.001 6
Banglades h
-3.75352
I(2)
0.02 84
-28.042
I(2)
0.00 01
-3.4815
I(2 )
0.000 4
US
-10.5552
I(2)
0.00 01
I(2)
0.00 34
0.000 3
-3.452457
I(2)
0.00 44
I(2)
0.00 21
I(2 )
0.004 8
Japan
-4.849159
I(2)
0.00 04
I(2)
0.00 01
4.8491 5 3.3915 1 -4.2948
I(2 )
UK
3.52137 8 3.80483 7 3.75352
I(2 )
0.000 4
Stock return Const Intri 6.6150 9 5.1872 3 4.9585 5 5.0317 7 4.8194 9 5.2527 9
pro
I(2)
0.0001
I(2)
0.0003
I(2)
0.0004
I(2)
0.0004
I(2)
0.0006
I(2)
0.0002
The present study used to time series analysis in three Asian countries and three developed countries it determine causality between GDP exchange rate, inflation rate, stock return. In order to examine Dynamic relationship between GDP, inflation rate, exchange rate, stock return of Asian countries and developed countries data should be stationary therefore four types of unit root test were employed in this log levels and log differenced form between these variables. The above table of unit root test report that the stock indices of three Asian countries and three developed countries India, Malaysia, Bangladesh, Japan, US, UK,. It contains unit root at level as ADF test for 5% This study used ADF test with and without intercept till data become intercept till the data become stationary. The data series is stationary at i(1) and 2 difference and intercept level as presented in above tables. The P value of ADF test in India GDP value is 0.0006, India exchange rate is 0.0002, and Indian stock return is 0.0001 which are less than 5%.
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International Journal for Research in Applied Science & Engineering Technology (IJRASET) ISSN: 2321-9653; IC Value: 45.98; SJ Impact Factor: 7.429 Volume 9 Issue X Oct 2021- Available at www.ijraset.com It means data series is stationary. Bangladesh exchange rate is 0.0004, inflation rate is 0.0001, stock returns 0.0004. Also predicting the value of ADF test equation the coefficient value ids negative in all cases suggesting that the model is fit.
countries India Malaysia Bangladesh US UK Japan
Table II Least square test table Std. Error 2081.086 48.05299 729.0480 370.8370 373.0055 1606.440
Coefficient 23575.28 1712.230 9611.514 7045.785 7040.153 15689.29
t-Statistic 11.32836 35.63212 13.18365 18.99968 18.87413 9.766474
Pro 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
The Least Square Test helps to examine the Cause and effect relationship between the variables of sample countries. It is estimated by ASIAN countries and developed countries. This table explains that there is strong relationship among the variables of the sample countries India, Malaysia, Bangladesh, US, UK, Japan where multiple regression statics is significant at 5% in all the cases. The significant relationship explaining that GDP, Inflation rate and exchange rate are quite associate with stock returns of their country. Table III Granger Causality Test Results Null Hypothesis
ob
f-stat
p-values
Decision
INSTRET does not Granger Cause BSTRET
9
0.65244
0.5686
Not rejected
BSTRET does not Granger Cause INRET
9
2.77557
0.1754
Not Rejected
MSTRET does not Granger Cause BSTRET
9
0.81280
0.5056
Not rejected
BSTRET does not Granger Cause MSTRET
9
1.69153
0.2935
Not rejected
1.69392 2.31633
0.2931 0.2147
Not rejected
UKSTRET does not Granger Cause BSTRET
9
BSTRET does not Granger Cause UKSTRET
9
USSTRET does not Granger Cause BSTRET
9
Not rejected 1.72622
0.2881
Not Rejected
BSTRET does not Granger Cause USSTRET
9
2.14812
0.2325
Not Rejected
JSTRET does not Granger Cause BSTRET
9 9
0.36622
0.7144
Not Rejected
BSSRET does not Granger Cause JSTRET
4.01126
0.1107
Not rejected
0.58040
0.6007
Not rejected
1.08729
0.4197
Not rejected
9 MSTRET does not Granger Cause INSTRET 9 INSTRET does not Granger Cause MSTRET
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International Journal for Research in Applied Science & Engineering Technology (IJRASET) ISSN: 2321-9653; IC Value: 45.98; SJ Impact Factor: 7.429 Volume 9 Issue X Oct 2021- Available at www.ijraset.com 9
1.09456
0.3741
UKSTRET does not Granger Cause INSTRET
Not rejected 9
INSTRET does not Granger Cause UKSTRET 9
0.27816 1.24518
USSTRET does not Granger Cause INSTRET 9 INSTRET does not Granger Cause USSTRET JSSTRET does not Granger Cause INSTRET UKSTRET does not Granger Cause MSTRET MSTRET does not Granger Cause UKSTRET
USSTRET does not Granger Cause MSTRET
0.7707
Not rejected
0.3798 0.7770
Not rejected
0.26889 9 9
Not rejected
2.63506
0.1862
Not rejected
0.11017
0.8983
Not rejected
1.46956
0.3323
Not rejected
1.70464 1.18584
0.2917
Not rejected
0.3327
Not rejected
0.2915
Not rejected
0.08376 0.10023 1.87528 2.34569 1.78989
0.3941 03599 0.9212 0.9068 0.2664
Not rejected Not rejected Not rejected Not rejected Not rejected
2.37639
0.2118
Not rejected
9
9 9
MSSTRET does not Granger Cause USSTRET 1.33389 JSTRET does not Granger Cause MSTRET
9 9
MSTRET does not Granger Cause JS TRET USSTRET does not Granger Cause UKTRET UK does not Granger Cause USSTRET JSTRET does not Granger Cause UKSTRET
9 9 9
UKSTRET does not Granger Cause JSTRET JSSTRET does not Granger Cause USSTRET
9 9
This table explains Granger causality test result. This test was applied between India, Malaysia, Bangladesh, Japan, US, UK. Granger Causality test significant at 5%. In the Granger Causality test if the first value significant than we can say there is unidirectional relationship. If both value is significant than we can say there is bi directional relationship. If both value are not significant than there is no causality between the variable. The Granger causality test was applied to check the causal relationship between the variables. In case of India, Malaysia, Bangladesh f-stat and p-values both are less than 5% which indicate that both value are not significant than it stipulate there is no causality between the variable. In order to achieve, US, UK, Japan f-stat and pvalues both are less than 5% which prudent that both value are not significant than it stipulate there is no causality between the variable VII. CONCLUSION Recognizing the importance of relationship between the stock market returns for three Asian countries and three developed countries. This paper aim to examine the long term relationship between the stock market returns for three Asian countries and three developed countries and also examine long term and short term co movement of stock indices of stock market. This paper is also investigate two way causality among exchange rate, inflation rate, GDP, with stock returns of the sample countries This study used ADF test with and without intercept till data become intercept till the data become stationary. The data series is stationary at i(1) and 2 difference and intercept levels its show that data is stationary. OLS test explains that there is strong relationship among the variables of the sample countries India, Malaysia, Bangladesh, US, UK, Japan where multiple regression statics is significant at 5% in all the cases. The significant relationship explaining that GDP, Inflation rate and exchange rate are quite associate with stock returns of their country. The Granger causality test was applied to check the causal relationship between the variables and found that there is no causality between the variable. The Granger causality test was applied to check the causal relationship between the variables.
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International Journal for Research in Applied Science & Engineering Technology (IJRASET) ISSN: 2321-9653; IC Value: 45.98; SJ Impact Factor: 7.429 Volume 9 Issue X Oct 2021- Available at www.ijraset.com REFERENCES [1] [2]
Abd Majid M, S. (2005). Stock market integration in emerging economies: The Case of Asian, USA And Japan, University Of Malaysia, 12. Chittedi And Krishna, Reddy. (2010). Global stock market development and integration with special reference to oic countries, International Review of Economics and Finance, 2. [3] Mukherjee and Mishra. (2005). Stock Market Integration and Abilities Spillover India and Its Major Asian Country, Asian Bulletin, 15 (2), 121-136. [4] ChittediAnd Krishna,Reddy. (2009). Global stock market development and integration with special reference to oic countries, International Review of Economics and Finance, 2. [5] Samadder and Amalendu (2018).Integration between Indian stock market and Developed stock markets, journal of commerce and Accounting Research, Volume 7 issue 1 January 2018. [6] Tripathi and Sethi (2010) Integration of Indian stock market with major Global stock market , Asian Journals of Business and Accounting 3(1) volume 2, issue 2, 2010 [7] Gogineni (2010) oil and the stock market An Industry level Analysis, Financial Review, vol. 45, November 2010. [8] Gupta .L and Shrivatava. R ( 2018 ) Testing Financial Integration between stock market of india and japan: a empirical study Business Analyst, ISSN 0973211X, 38(2), 114-131, ©SRCC , Vol. 38, NO. 2/Oct. 2017-Mar. 2018 [9] C .Pornpiun (2017) THE CORRELATIONS OF THE EQUITY MARKETS IN ASIA AND THE IMPACT OF CAPITAL FLOW MANAGEMENT MEASURES, ADBI Working Paper 766. [10] Agmon,T. (1972). The relations among equity markets. A study of share price co-movement in the united states, united Kingdom, Germany and Japan. The journal of Finance, 27(4), 839-855. [11] Janakiramanan, s & Lamba, S A. (1998) An empirical examination of linkage between pacific- basin stock market. Journal of international financial markets, institutions and money, 8, 155-173.
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