The break point-dependent causality between the cryptocurrency and emerging stock markets

Abstract

The causal relationship between the cryptocurrency and emerging stock markets is investigated using the Granger causality test and Liang causality analysis, a state-of-the-art technique rigorously derived ab initio. On the whole, neither market is Granger causal to the other. But with Liang’s causality analysis we identified a unidirectional short-run temporal causality from the cryptocurrency market to emerging stock markets, and a unidirectional long-run causality in the opposite direction. Application of the multiple structural break point test reveals that the causal relationship is dynamic. Specifically, during the turbulent periods, by Liang’s causality analysis there is a unidirectional short-run temporal causality from the cryptocurrency market to emerging stock markets, but by the Granger test, the causality is not identified between both markets; during the tranquil periods, the inference based on Liang’s technique yields a long-run causal relationship from emerging stock markets to the cryptocurrency market. These results have been justified with observations.