Asymmetric causality tests have increasingly expanded across various scientific fields, as they can better reflect the actual behavior of economic variables. In many economic relationships, the response of variables to positive and negative shocks is not identical, and ignoring this heterogeneity may lead to misleading inferences. Therefore, asymmetric causality analysis is particularly important in financial markets, where investors and policymakers may react differently to positive and negative news.
In this study, using the efficient asymmetric causality test based on the Seemingly Unrelated Regression (SUR) approach, the accumulated positive and negative shocks in the growth rate of the stock market index and the exchange rate were extracted, and the causal relationships between them were examined. The SUR approach was employed for efficient estimation, as the conventional Vector Autoregression (VAR)-based causality tests suffer from the main limitation of correlation between positive and negative components, which leads to inefficient estimates. Moreover, the Wald test was used to test asymmetric causality.
The findings indicate that the causal relationship from the exchange rate to the stock market is significantly asymmetric, implying that positive and negative exchange rate shocks have different impacts on the stock market. In contrast, the reverse relationship from the stock market to the exchange rate shows no strong evidence of asymmetry. These results suggest that the foreign exchange market plays a central role in transmitting shocks to the stock market, and that the stock market’s reaction is sensitive to the positive or negative nature of these shocks.