TESTING FOR LINEAR AND NON-LINEAR GRANGER NON-CAUSALITY HYPOTHESIS BETWEEN STOCK AND BOND: THE CASES OF MALAYSIA AND SINGAPORE

The untested assumption of linear relationship between stocks and bonds in previous empirical studies may lead to an invalid conclusion if the actual relationship is non-linear. The emphasis of this paper is on the effect of non-linearities on causal relationships between stocks and bonds in the cas...

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Bibliographic Details
Published inSingapore economic review Vol. 59; no. 5; p. 1
Main Authors Ong, Sheue Li, Ho, Chong Mun
Format Journal Article
LanguageEnglish
Published Singapore World Scientific Publishing Co. Pte., Ltd 01.12.2014
Subjects
Bonds
Causality
Economic models
Economic theory
Maturity
Stocks
Studies
Malaysia
Singapore
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Summary:The untested assumption of linear relationship between stocks and bonds in previous empirical studies may lead to an invalid conclusion if the actual relationship is non-linear. The emphasis of this paper is on the effect of non-linearities on causal relationships between stocks and bonds in the cases of Malaysia and Singapore. Results from linearity tests indicate the existence of non-linearities in the dynamic relationship between stocks and bonds. Non-linear causality test results based on Taylor expansion suggest that non-linear causality flows from stocks to bonds and vice versa. The test further confirms that bonds with different maturity dates have different relationships with stocks.
ISSN:0217-5908
1793-6837