Investigating the Short-run and Long-run Causal Relationship between the Stock Price Index in Insurance Industry, Banking Sector and Investment Sector

The purpose of this Research is to investigate the causal relationship between the stock price index in the insurance industry, banking sector, and the investment sector during 2009 – 2017 period. So, a long-term relationship between variables was investigated by Johansson-Juselius test. Then, by Vector error correction model (VECM), the causal relation between the variables of the model was studied. According to the results, the existence of long-term Granger causality is confirmed from stock prices in banking sector and investment sector indices toward insurance industry. Also, the existence of a long-term Granger causality from insurance industry and banking sector toward investment sector is not confirmed, but there is a long-term causal relationship from Insurance industry and investment sectors toward banking sector. Only a short-run causal relationship is found from stock price index of insurance industry and stock price index of banking sector toward investment sector. Banking sector has a negative impact on insurance industry, which indicates the Substitution effect of banking sector in insurance industry. It can also be argued that if the stock market is a good indicator of economic environment, the insurance sector and banking sector act ineffectively in persuading investment, which indicates a necessity for revision on the subject.