Abstract
In this paper, we test for linear and nonlinear Granger causality between the French, German, Japanese, UK and US daily stock index returns from 1973 to 2003. To avoid spurious nonlinear causality, we filter out heteroskedasticity using a FIGARCH model and control for multiple structural breaks. We document the presence of bidirectional nonlinear causality but a large part can be explained by heteroskedasticity and structural changes.
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