The empirical analysis is based on daily stock returns of selected developed stock markets major indices during the period between June 1993 and December 2013. The IBEX 35 index is a market capitalization weighted index and it is also the benchmark stock market index of the Bolsa de Madrid (Madrid Stock Exchange), i.e. the main stock exchange in Spain. The S&P TSX Composite Index is a capitalization-weighted index designed in order to measure market activity of the largest companies listed on the Toronto Stock Exchange.
The applied financial econometrics research methodology includes: Unit Root Test, Augmented Dickey-Fuller stationary test, BDS test and Granger causality test. The continuously-compounded daily returns are calculated using the log-difference of the closing prices of stock markets selected indices, ie IBEX 35 Index (Spain) and S&P TSX Composite Index (Canada), as follows:
where p is the daily closing price. Data series consists of the daily closing prices for each sample stock index during the period between June 1993 and December 2013. with the exception of legal holidays or other events when stock markets haven’t performed transactions.
The trend of IBEX 35 Index (Spain) and S&P TSX Composite Index (Canada)
The log-returns of IBEX 35 Index (Spain) and S&P TSX Composite Index (Canada): Joint graphic