The prior studies of co-integration and causal relationship of different countries’ stock indices have been explored extensively among established markets (Huang, Yang and Hu, 2000; Tabak and Lima, 2003; Narayan, Smyth and Nandha, 2004). This study utilized the causality test to investigate the causal relationship among Russia (RTS), China (SSE) and Mongolia’s (MSE) stock markets from 12 Feb 2001 to 27 Jun 2012. In this study, unit root tests, Augmented Dickey-Fuller (ADF) and Phillip Perron (PP), Johansen’s co-integration test, Vector Autoregressive (VAR) model and Pair-wise Granger causality test were employed to examine empirical relationship. Our results show China’s (SSE) stock index causal lead Mongolia’s (MSE) stock index and Russia’s (RTS) stock index. However, there is no significant causal relationship detected between Russia and Mongolia. These findings illustrate that China’s stock market will greatly impact Mongolia’s stock market moreover Mongolia’s economy. Empirical findings perhaps can be a reference for investors in decision-making.
