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Multivariate Causality between Stock price index and Macro variables: ‎evidence from Canadian stock market

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  • NEIFAR, MALIKA

Abstract

Currently, the investor considers monetary indicators a vital factor when ‎making any investment in equity prices. This research aim to find the long-‎run relationship between stock returns (DLSP) of Canada and monetary ‎indicators as the exchange rate (LEXC), the interest rate (LINT), and ‎inflation rate (INF). We consider T=232 observations for each variable from ‎January 1999 to April 2018. From the Johansen cointegration approaches, ‎there is no long-run association between stock prices and monetary ‎indicators. Results of the Granger causality tests have demonstrated the ‎unidirectional causation from the stock return to Inflation rate and to ‎Exchange rate growth. While Results of Toda and Yamamoto Wald tests ‎have demonstrated a bidirectional causal relation between stock price and ‎consumer price index and a unidirectional causation from stock price to the ‎interest rate and to the exchange rate growth. Based on IRFs, Inflation rate ‎is shown to be inversely related to stock returns. Thus, it is concluded that ‎the predictability of Canadian stock return relies only on the variations of ‎inflation rate.‎

Suggested Citation

  • Neifar, Malika, 2021. "Multivariate Causality between Stock price index and Macro variables: ‎evidence from Canadian stock market," MPRA Paper 105715, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:105715
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    References listed on IDEAS

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    1. NEIFAR, MALIKA & Dhouib, Salma ‎ & Bouhamed, Jihen ‎ & Ben Abdallah, Fatma ‎ & Arous, Islem ‎ & Ben Braiek, Fatma ‎ & Mrabet, Donia ‎, 2021. "The impact of macroeconomic variables on Stock ‎market in United Kingdom," MPRA Paper 106246, University Library of Munich, Germany.

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    More about this item

    Keywords

    Canadian stock price index; macroeconomic variables; Granger non causality; Johansen ‎cointegration; Toda and Yamamoto non causality wald test; Impulse–response functions ‎‎(IRFs).‎;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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