Spillover effects of the US stock market and the predictability of returns: international evidence based on daily data

Wen, Yi-Chieh; Li, Bin; Chen, Xiaoyue; Singh, Tarlok

doi:10.1080/00036846.2022.2138818

Cited by 5 publications

(1 citation statement)

References 57 publications

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“…First, our findings extend the literature on systemic risk spillover by highlighting the significant systemic risk transmission from the US banking sector, and the US market to severely impacted Asian markets during two important phases of COVID-19 in 2020 (January–May 2020 (when COVID-19 was declared a pandemic, and lockdown and strict regulations were imposed across the globe to limit the spread of the virus) and June–December 2020 (when the regulations were easing, and economies were opening up, and the government announced relief packages to stabilize the economy)). Existing studies have mainly examined the risk spillover from the US market only (Abuzayed et al, 2021; Li, 2021; Wen et al, 2022); however, the banking system plays important role in systemic risk estimation and has mainly been ignored in studies related to systemic risk transmission during the COVID-19 period. Second, the study estimates the contribution of the US banking sector and the US market in increasing the systemic risk of the given Asian economies.…”

Section: Introductionmentioning

confidence: 99%

Systemic Risk Transmission from the United States to Asian Economies During the COVID-19 Period

Narayan

Kumar

2023

Journal of Emerging Market Finance

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The study investigates the systemic risk transmission from the US banking sector and the US market to the five most economically impacted Asian nations (Thailand, Malaysia, the Philippines, India, and Singapore) during the COVID-19 period of 2020. We consider the conditional value-at-risk (CoVaR) approach to estimate the systemic risk of the given economies at 5% quantile (for severe downturn risk) and 20% quantile (for moderate downturn risk). Our findings demonstrate a rise in systemic risk for these Asian countries in 2020, particularly in the first half of the year. The findings also provide evidence of the significant systemic risk transmission from the US banking sector and the US stock market to the majority of the given Asian economies at both quantiles. The study further highlights the significant contribution of the US financial market in increasing the systemic risk of the given Asian economies in 2020. We find similar results for systemic risk transmission from the UK, the European Union, and Japan to the given Asian economies. The findings have implications for market participants, risk managers, and regulators who are concerned with risk diversification and tracking the routes of risk shock transmission. JEL Codes: G10; G18; G20

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Section: Introductionmentioning

confidence: 99%

Systemic Risk Transmission from the United States to Asian Economies During the COVID-19 Period

Narayan

Kumar

2023

Journal of Emerging Market Finance

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Realized semibetas in the Australian stock market

Li,

2024

Applied Economics

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Economic policy uncertainty and the predictability of stock returns: impact of China in Asia

Chen,

Li,

Singh

et al. 2024

CAFR

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PurposeMotivated by the significant role of uncertainty in affecting investment decisions and China's economic leadership in Asia, this paper investigates the predictive role of exposure to Chinese economic policy uncertainty at the individual stock level in large Asian markets.Design/methodology/approachWe estimate the monthly uncertainty exposure (beta) for each stock and then employ the portfolio-level sorting analysis to investigate the relationship between the China’s uncertainty exposure and the future returns of major Asian markets over multiple trading horizons. The raw returns of the high-minus-low portfolios are then adjusted using conventional asset pricing models to investigate whether the relationship is explained by common risk factors. Finally, we check the robustness of the portfolio-level results through firm-level Fama and MacBeth (1973) regressions.FindingsApplying portfolio-level sorting analysis, we reveal that exposure to Chinese uncertainty is negatively related to the future returns of large stocks over multiple trading horizons in Japan, Hong Kong and India. We discover this is unexplained by common risk factors, including market, size, value, profitability, investment and momentum, and is robust to the specification of stock-level Fama and MacBeth (1973) regressions.Research limitations/implicationsOur analysis demonstrates the spillover effects of Chinese economic policy uncertainty across the region, provides evidence of China's emerging economic leadership, and offers trading strategies for managing uncertainty risks.Originality/valueThe findings of the study significantly improve our understanding of stock return predictability in Asian markets. Unlike previous studies, our results challenge the leading role of the US by providing a new intra-regional return predictor, namely, China’s uncertainty exposure. These results also evidence the continuing integration of the Asian economy and financial markets. However, contrary findings for some Asian markets point toward certain market-specific features. Compared with market-level research, our analysis provides deeper insights into the performance of individual stocks and is of particular importance to investors and other market participants.

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Spillover effects of the US stock market and the predictability of returns: international evidence based on daily data

Cited by 5 publications

References 57 publications

Systemic Risk Transmission from the United States to Asian Economies During the COVID-19 Period

Systemic Risk Transmission from the United States to Asian Economies During the COVID-19 Period

Realized semibetas in the Australian stock market

Economic policy uncertainty and the predictability of stock returns: impact of China in Asia

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