PROJECT NO: 02

IMPACT OF SGD ON STOCK MARKET OF

SINGAPORE(STI) BY COINTEGRETION ANALYSIS.
Course: RESEARCH METHOD IN FINANCE
CODE: FIN6183
Program MS Management Sciences
Semester: 3rd
Submitted to: Dr. Arshad Hassan
Submitted by: Sanaullah Khan
MMS183028

Department of Management Sciences

Faculty of Management and Social Sciences (FOMSS)
Capital University of Science & Technology (C.U.S.T.)
IMPACT OF SINGAPORE DOLLAR(SGD) ON STOCK
MARKET OF SINGAPORE(STI)

VAR Lag Order Selection

Criteria

Endogenous variables: CU IN 

Exogenous variables: C 
Date: 08/23/19 Time: 13:07
Sample: 1/04/2000 6/28/2019
Included observations: 4835

 Lag LogL LR FPE AIC SC HQ

0  5412.002 NA   0.000366 -2.237850 -2.235168 -2.236908

1  34297.23  57734.61  2.37e-09 -14.18458 -14.17654 -14.18176
2  34359.30  124.0231  2.31e-09 -14.20861 -14.19520 -14.20390
3  34418.82  118.8483  2.26e-09 -14.23157  -14.21279* -14.22498
4  34428.85   20.02732*   2.26e-09*  -14.23406* -14.20993  -14.22559*
5  34432.51  7.302078  2.26e-09 -14.23392 -14.20442 -14.22356

As above table shows that AIC is best fit at lag 4 so we will use lag 4 for working.

JHONSEN COINTEGRETION TEST

Date: 08/23/19 Time: 13:11

Sample: 1/04/2000 6/28/2019

Included observations: 4835

Series: CU IN 
Lags interval: 1 to 4

 Selected (0.05
level*) Number
of
Cointegrating
Relations by
Model

Data Trend: None None Linear Linear Quadratic

 Test Type No Intercept Intercept Intercept Intercept Intercept
No Trend No Trend No Trend Trend Trend
Trace 0 0 0 0 0
Max-Eig 0 0 0 0 0

As Number of Cointegrating Relations show by model are all zero which indicate no
cointegration and there is no co movement.so further we will work with vector auto regressive
model (VAR) including variance decomposition and Impulse

  Vector Autoregression Estimates

 Date: 08/23/19 Time: 13:26
 Sample (adjusted): 1/11/2000 6/28/2019
 Included observations: 4835 after adjustments
 Standard errors in ( ) & t-statistics in [ ]

D(CU) D(IN)

D(CU(-1)) -0.140592 -0.087607

 (0.01443)  (0.03753)
[-9.74445] [-2.33404]

D(CU(-2)) -0.161200  0.037932

 (0.01455)  (0.03786)
[-11.0763] [ 1.00187]

D(CU(-3)) -0.054079 -0.057379

 (0.01454)  (0.03783)
[-3.71887] [-1.51672]

D(CU(-4)) -0.019221 -0.053580

 (0.01434)  (0.03731)
[-1.34028] [-1.43613]

D(IN(-1)) -0.047014  0.032617

 (0.00554)  (0.01442)
[-8.47894] [ 2.26118]

D(IN(-2)) -0.023323  0.014122

 (0.00558)  (0.01453)
[-4.17718] [ 0.97221]

D(IN(-3)) -0.012715 -0.011598

  (0.00559)  (0.01455)
[-2.27328] [-0.79707]

D(IN(-4))  0.004063  0.017853

 (0.00557)  (0.01449)
[ 0.72946] [ 1.23201]

C -5.29E-05  5.43E-05
 (6.1E-05)  (0.00016)
[-0.86031] [ 0.33925]

 Results shows that D(CU(-1)) has significant impact on stock market (STI) as [-2.33404]
> 1.96 and there is short term effect of currency on stock market.
 D(CU(-2)) shows insignificant impact on stock market (STI) and there is no short-term
effect of currency on stock market . [ 1.00187]<1.96
 D(CU(-3)) also indicate that there is no short term effect of currency on stock
market(STI).
 [-1.51672] <1.96.
 D(CU(-4)) indicate insignificant impact in short term on stock market(STI). [-1.43613]
<1.96.

VARIANCE DECOMPOSITION

(1) Variance
Decompositio
n of D(CU):
 Period S.E. D(CU) D(IN)

 1  0.004275  100.0000  0.000000

 2  0.004343  98.55839  1.441609
 3  0.004385  98.37301  1.626986
 4  0.004386  98.36191  1.638087
 5  0.004388  98.30203  1.697969
 6  0.004388  98.30218  1.697819
 7  0.004388  98.30084  1.699158
  8  0.004388  98.30046  1.699543
 9  0.004388  98.30045  1.699553
 10  0.004388  98.30043  1.699574

(2) Variance
Decompositio
n of D(IN):
 Period S.E. D(CU) D(IN)

 1  0.011121  0.521864  99.47814

 2  0.011134  0.650159  99.34984
 3  0.011138  0.677950  99.32205
 4  0.011140  0.712082  99.28792
 5  0.011145  0.753334  99.24667
 6  0.011145  0.754401  99.24560
 7  0.011145  0.755352  99.24465
 8  0.011145  0.755354  99.24465
 9  0.011145  0.755416  99.24458
 10  0.011145  0.755424  99.24458

 Cholesky
Ordering:
D(CU) D(IN)

 In table 1 it is found that 98.30% variation in Singapore dollar (SGD) is explained by its
lags or we can say 98.30% effect in Singapore dollar (SGD) is due to its own market.
While 1.70% is due to stock market (STI).
 In table 2 it is found that 99.25% variation in stock market of Singapore (STI) is due to
its own market while 1.75% is due to Singapore dollar (SGD).

IMPULSE RESPONSE
 Response to Cholesky One S.D. Innovations
Response of D(CU) to D(CU) Response of D(CU) to D(IN)
.005 .005

.004 .004

.003 .003

.002 .002

.001 .001

.000 .000

-.001 -.001
1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10

Response of D(IN) to D(CU) Response of D(IN) to D(IN)

.012 .012

.008 .008

.004 .004

.000 .000

1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10

 Impulse response of D(CU) to D(CU) shows it dies after two periods and become
insignificant.
 Impulse response of D(CU) to D(IN) shows that it is insignificant and dies at the start of
the period and it indicate no response.
 Impulse response of D(IN) to D(CU) shows that it dies at the start of the period and
shows no response.
 Impulse response of D(IN) to D(IN) shows that it dies after 3.5 lags and is not significant.