Causality And Cointegration Of Currency-Adjusted Stock Indices: Evidence From Close-Of-Day Data

Abstract

A recent line of research develops currency adjusted stock indices.  These indices incorporate the effects of both stock value changes and underlying currency value changes to measure wealth changes.  This paper extends the extant literature by examining time series properties of currency-adjusted indices.  This research examines daily data for eight existing stock indexes and their currency adjusted counterparts for the period 1993-2013.  The paper includes cointegration and Granger causality analyses.  Results show cointegration between each combination of series examined.  About half the pairwise index combinations display bidirectional Granger causality.