Causality relationship between bank indices: an application on selected countries

Abstract

Purpose- If price volatility in one stock exchange has an impact on other stock exchanges, this is called volatility spillover effect. Along with volatility, the change in returns in one stock exchange can also affect other stock exchanges in the short term. This situation is called interconnectedness, co-movement and furthermore, interdependence of stock markets. Therefore, this study aims to investigate the causality relationship between the bank indices of the 5 countries with the highest income (USA, China, Japan, Germany and India) in 2022 according to IMF data. Methodology- In the study, the daily frequency data set between 04/01/2018 -16/11/2023 was used. In the analysis phase, firstly, ADF and PP unit root tests were applied to determine whether the variables are stationary or not. Causality relationships between variables were tried to be determined by Granger Causality test. Findings- When the relationship between the bank indices of the 5 major economies subject to the research is analysed, a granger causality relationship was found between DAX variable and FTSE, TR INDIA and NIKKEI, between FTSE index and NASDAQ and NIKKEI, between TR INDIA and NIKKEI. Conclusion- Ülke borsası arasında bağımlılık ilişkilerinin kendini göstermesi ve konjonktür dalgalarının bu sürece etki etmesi, finans piyasasında alınan kararlar ile ortaya çıkan etkilerin diğer finans piyasasına etki edebileceğini ve bu doğrultuda da yatırımcı hareketlerini yönlendirebileceğini göstermesi bakımından oldukça önemlidir. Keywords: International stock exchanges, bank indices, Granger Causality Test JEL Codes: C22, G15, G20