Driver-Driven Relationship Between the Tokyo Stock Exchange Indices-TOPIX and NIKKEI

The paper aims to check causality relationships among two Japanese indices TOPIX and NIKKEI. Both the indices are calculated under Tokyo Stock Exchange. TOPIX has been in existence from 1968 whereas the calculation of NIKKEI started from 1950s. TOPIX is a free-float adjusted market capitalisation weighted index and covers a wider market as compared to NIKKEI which is price weighted and mainly comprises of top blue-chip companies. Bivariate Granger Causality test has been run on the logarithmic values of closing prices of both the indices for the period of twenty years from 2000-18. The test revealed a causality relationship among the indices wherein TOPIX was the driven index and NIKKEI was the driver index. This implies that in maximum of the cases the performance of TOPIX is dependent on NIKKEI.