The Causal Relationship between the Stock Indices of Western Bloc Countries: A Case on Belgium and France
Keywords:Bivariate Granger Causality, Co-integration and Linkages, Stochastic Drift
The paper aims at finding reciprocity among two Western European Bloc indices CAC40 and BEL20. CAC40 is a French index which has been in existence since 1986 and BEL20 is a Belgian index whose calculation started four years later. A Granger Causality Test has been performed to check for causality relationships among both the indices. The dataset taken comprises logarithmic close prices on which Bivariate Granger Causality has been performed. The dataset spans for 20 years from 2000 to 2018. The study found the younger index BEL20 to be the driver index and CAC40 as the driven index. Thus, the conclusion drawn is that the performance of CAC40 depends on BEL20 most of the time.
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