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Causal relationship between spot and futures prices with multiple time horizons: A nonparametric wavelet Granger causality test

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  • Torun, Erdost
  • Chang, Tzu-Pu
  • Chou, Ray Y.

Abstract

This study investigates the causal information flow between 45 major daily spot returns and their corresponding futures in developing, emerging, and commodity indices through a novel nonparametric wavelet Granger causality test (NWGC) that is capable of detecting causality patterns in various time scales without any stationarity assumption or multivariate autoregressive modeling requirement. We provide new evidence for a complex causality pattern phenomenon. First, there may not be just one dichotomous answer about the Granger causality test for each market data in a time domain, as markets exhibit different causal information flows for different time scales. Second, each market may show distinct causality patterns compared to other markets.

Suggested Citation

  • Torun, Erdost & Chang, Tzu-Pu & Chou, Ray Y., 2020. "Causal relationship between spot and futures prices with multiple time horizons: A nonparametric wavelet Granger causality test," Research in International Business and Finance, Elsevier, vol. 52(C).
    • Handle: RePEc:eee:riibaf:v:52:y:2020:i:c:s0275531919300455
    DOI: 10.1016/j.ribaf.2019.101115
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    More about this item

    Keywords

    Granger causality; Futures market; Wavelet; Time-frequency analysis;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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