You, Kefei; Chinthalapati, V. L. Raju; Mishra, Tapas and Patra, Ramakanta. 2024. International trade network and stock market connectedness: Evidence from eleven major economies. Journal of International Financial Markets, Institutions and Money, 91, 101939. ISSN 1042-4431 [Article]

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Abstract or Description

Depth of cross-country international trade engagement is an important source of (the strength of) stock-market connectedness, depicting how directional attributes of trade determine the magnitude of spillover of stock returns across economies. We premise and test this hypothesis for a group of eleven major economies during 2000 m1-2021 m6 using both system-wide and directional evidence. We exploit the input–output network of Bilgin and Yilmaz (2018) to construct a trade-network, and use Diebold and Yilmaz, 2009, Diebold and Yilmaz, 2012, Diebold and Yilmaz, 2014 Connectedness Index to proxy for stock-market connectedness among economies. We reveal China’s instrumental role in the trade-network and its rising influence in stock markets dominated by the US. Motivated by the fact that shocks on an economy’s imports and exports may lead to different magnitude of stock market spillover to its trade partner, we further carry out a pairwise directional level investigation. Once the directional dimensions of both the trade flows and the stock market influences are considered, we find that an economy’s stock return spillover to its trade partner is generated from its position as an importer and exporter. More importantly, being an importer is found to be a stronger source of such spillover than being an exporter.

Item Type:	Article
Additional Information:	JEL classification: F14, G15, C51
Data Access Statement:	Data will be made available on request.
Keywords:	Import-export/trade-network, Stock-market connectedness, Directional spillover, Vector autoregression, Variance decomposition
Departments, Centres and Research Units:	Computing
Dates:	Date Event 4 January 2024 Accepted 14 January 2024 Published Online March 2024 Published
Item ID:	34749
Date Deposited:	06 Feb 2024 09:29
Last Modified:	06 Feb 2024 09:34
Peer Reviewed:	Yes, this version has been peer-reviewed.
URI:	https://research.gold.ac.uk/id/eprint/34749

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