Currency-Adjusted Stock Index Causality and Cointegration: Evidence from Intraday Data

Abstract

Currency adjusted stock indices consider the impact of both stock value changes and underlying currency value changes on total wealth changes. This paper explores causality and cointegration of currency-adjusted indices using intraday data. This paper examines tick-by-tick data for seven currently available stock indexes, the Philadelphia Housing Index and the Dollar Index for the period 2002-2013. Results show cointegrating relationships between each combination of series examined. The analysis reveals a higher level of causality than found in previous research. The results show bidirectional Granger causality for every index pairwise combination examined.

Keywords: Cointegration, Stock Index, Currency-Adjusted Stock Index, Dow Jones Industrial Average

JEL Classification: F15, G11, D14