Causality of interest rate, exchange rate and stock prices at stock market open and close in Hong Kong

Using an ARIMA approach, the causality of daily interest rate (HIBOR), exchange rate (FOREX) and stock prices in Hong Kong were explored for the period 1986-1991. The results were verified and confirmed by the Granger causality tests. Depending on the subperiods being considered, sporadic unidirectional causality from closing stock prices to interest rate, and weak bi-directional causality between stock prices and the exchange rate, were found. The sporadic incidence of uni-directional and bi-directinal causalities aside, the overall evidence appears to show that the Hong Kong market quickly adjusted or efficiently incorporated much of the interest rate and exchange rate information in its daily price changes. Results also appear to suggest an improvement in stock market efficiency in Hong Kong in recent years.