Lead-lag patterns in the Spanish and other European equity markets

Cambón, Ma Isabel; Vaduva, Maria Andreea

doi:10.1016/j.srfe.2017.05.001

Cited by 1 publication

(1 citation statement)

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“…Wen et al ( 2015 ) also studied international markets and demonstrated that US stock returns could predict South African returns from 1973 to 2014. Cambón and Vaduva ( 2017 ) showed that Spanish industries, which provided valuable and important economic information, drove neither equity markets nor economic activity. The hypothesis presented by Hong et al ( 2007 ) was not supported in the case of Spain, where company characteristics, especially size, may be more relevant in understanding lead-lag patterns.…”

Section: Literature Reviewmentioning

confidence: 99%

Industry return lead-lag relationships between the US and other major countries

2023

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In this study, we analyze the lead-lag relationships between the US industry index and those of six other major countries from January 1973 to May 2021. We identify the leading role played by the US internationally by showing that the weekly returns of US industries, especially the US basic materials and energy industries, significantly Granger cause the returns of most other countries’ industries, suggesting that non-US industries react with some delay to new information. This delayed reaction is even more noticeable during periods of recession in the US when cross-country correlations are higher. This implies that the ability of the lagged returns of US industries to predict industries’ returns from other countries is even more pronounced when the US experienced an economic recession. A similar asymmetric relationship is found between the volatility of US industries and that of industries in other markets. The analysis of causality in the distribution of returns and volatility shows that causality runs mainly from the US to other countries, particularly in the presence of extreme negative shocks. Finally, we demonstrate that our predictions are valuable to real-world investors. Long-short strategies generate sizable and statistically significant alphas, and a constant relative risk-averse investor obtains certainty equivalent returns well above the risk-free rate.

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Section: Literature Reviewmentioning

confidence: 99%