Interdependence of Philippine Stock Exchange Sector Indices: Evidence of Long-run and Short-run Relationship

Year: 2016       Vol.: 65       No.: 1      

Authors: Karl Anton M. Retumban

Abstract:

The interdependence of the Philippine Stock Exchange Sector Indices was analyzed using Johansen’s Cointegration test, Granger-Causality and Forecast Error Variance Decomposition. Daily, weekly and monthly data were used from January 2006 up to June 2015.The results confirm existence of cointegration among the six sector indices implying that the indices follow a common trend and have a long-run relationship. This is true across the daily, weekly and monthly data. There is also a uni-directional causality existing among the sector indices. Aside from the sector indices own shock largely influencing its own variation, the innovations from the financial sector index significantly contributes to the variation of other sector indices.

Keywords: Johansen’s Cointegration, Granger Causality, Forecast Error Variance Decomposition, Philippine Stock Exchange Sector Indices

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