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- Title
AN IMPROVED METHOD OF GRANGER CAUSALITY TEST AND APPLICATION ON THE STOCK MARKET RISK TRANSMISSION.
- Authors
Lijun ZHANG; Xu YAO
- Abstract
Granger causality analysis has been actively adopted in the field of economics, operations research, finance, statistics, data mining and decision making. The current Granger causality analysis method can just perform effectively in dealing with the two-variable causality test, and thus it could lead to the confusion between direct cause and indirect cause and also pseudo-cause problems due to the homologous data. In order to solve the flaws considered above, an improved method is here proposed by introducing additional variables to the original Granger test equation and defining a new test statistic through Monte Carlo method. Furthermore, a simulation analysis for validation and an empirical analysis in stock market risk transmission for application were both made. Both the results demonstrate that the improved method is able to avoid the confusions caused by the current method and also capable of finding the risk conduction path clearly.
- Subjects
GRANGER causality test; STOCK exchanges; ECONOMIC aspects of decision making; RISK assessment; MONTE Carlo method
- Publication
Economic Computation & Economic Cybernetics Studies & Research, 2015, Vol 49, Issue 2, p309
- ISSN
0424-267X
- Publication type
Article