Variance Decomposition Analysis

Variance Decomposition Analysis
The variance decomposition analysis has applied to quantify the extent up to which the selected indices one influenced by each other. We can also examine the short run dynamic relationship by variance decomposition. While impulse response functions trace the effects of a shock to one endogenous variable in the VAR, variance decomposition separates the variation in an endogenous variable in to the component shocks to the VAR. Thus, the variance decomposition provides information about the relative importance of each random innovation in effecting the variables in the VAR.
Impulse Response
Impulse responses have been applied to trace out the responsiveness of the dependent variables in the VAR to shocks to each of the variables. So, …show more content…
Granger Causality Test
Now we proceed to perform the granger causality analysis for the selected benchmark indices. The granger causality test conducted to see whether Bharat stock market cause other markets and vice versa in short run. Table 3 present the findings of granger’s causality test for the stock exchanges under study. Table 3: Pair Wise Granger Causality Test
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