Price transmission between DJIA, S&P 500 Index, PPI and CPI

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Southern New Hampshire University
Our previous work on month effect in the DJIA, CPI and PPI led us to hypothesize that significant negative September effect that we found for the DJIA might have been caused by changes in the CPI and PPI. This led us to explore the nature of price transmission between the three (we add S&P 500 Index as well). Using VAR analysis and Granger causality analysis we find that the DJIA had a 2-month lagged impact on the CPI in the first two periods (1926-1945 and 1946-1972), and on the PPI in the second period (1946-1972); but in none of the three periods was the DJIA significantly impacted by the PPI or the CPI. For the period 1972-2003, the CPI and PPI were significantly unaffected by the DJIA and the S&P500 Index and also the DJIA and the S&P500 were also not affected significantly by the CPI and PPI. These results follow from both the VAR analysis and Granger causality tests.
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