Is There a Symmetric Nonlinear Causal Relationship between Large and Small Firms?

30 Pages Posted: 7 Sep 2004

See all articles by Bill B. Francis

Bill B. Francis

University of South Florida - College of Business Administration

Delroy M. Hunter

University of South Florida

Mbodja Mougoué

Wayne State University - Finance

Date Written: May 1, 2003

Abstract

This paper uses both linear and nonlinear causality tests to reexamine the cross-autocorrelation between the returns on large and small firms. Consistent with previous results, we find that large firms lead small firms, but small firm autocorrelation, nonsynchronous trading, or a differential response to a large set of economy-wide information cannot explain this finding. More important, in contrast to the received literature, we find significant nonlinear causality that is bidirectional and of the same duration in either direction. After controlling for possible sources of nonlinearities, such as information flow as proxied by volatility, macroeconomic information, business cycle effects, and nonsynchronous trading, we continue to find strong evidence of equal duration, bi-directional nonlinear causality.

Keywords: Granger causality, nonlinear causality, small firms, lead-lag relationship, cross-autocorrelation

JEL Classification: G10, G12

Suggested Citation

Francis, Bill B. and Hunter, Delroy M. and Mougoué, Mbodja, Is There a Symmetric Nonlinear Causal Relationship between Large and Small Firms? (May 1, 2003). Available at SSRN: https://ssrn.com/abstract=586544 or http://dx.doi.org/10.2139/ssrn.586544

Bill B. Francis

University of South Florida - College of Business Administration ( email )

4202 E. Fowler Avenue, BSN 3403
Dept. of Finance
Tampa, FL 33620-5500
United States
813-974-6300 (Phone)
813-974-3030 (Fax)

HOME PAGE: http://www.coba.usf.edu/departments/finance/facult

Delroy M. Hunter

University of South Florida ( email )

Dept of Finance, Muma College of Business
4202 E. Fowler Ave, BSN3403
Tampa, FL 33620
United States
(813) 843-2085 (Phone)
(813) 974-3084 (Fax)

HOME PAGE: http://www.usf.edu/business/contacts/hunter-delroy.aspx

Mbodja Mougoué (Contact Author)

Wayne State University - Finance ( email )

328 Prentis Bldg.
5201 Cass Avenue
Detroit, MI 48202
United States

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