Ripples into waves: Trade networks, economic activity, and asset prices

Chang, Jeffery (Jinfan), Huancheng Du, Dong Lou and Christopher Polk

Journal of Financial Economics, 2022, vol. 145, issue 1, 217-238

Abstract: We exploit information in sovereign CDS spreads and the international trade network to provide causal evidence of the propagation of global economic shocks. We show that trade links are an important source of shock transmission using the natural experiments of the Japanese tsunami and the COVID-19 lockdown in China. We then confirm more general and gradual information flows along the trade network by showing extensive country-level credit/equity cross-sectional return predictability. News about country fundamentals flows primarily from importers to exporters, depends on both direct and indirect links in the trade network, and is magnified by the exporting country's financial vulnerability.

Keywords: Sovereign CDS; Return predictability; Trade networks; Limited attention; Information aggregation (search for similar items in EconPapers)
JEL-codes: F40 G12 G15 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:145:y:2022:i:1:p:217-238

DOI: 10.1016/j.jfineco.2021.08.005

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