Emerging stock market volatility and economic fundamentals: the importance of US uncertainty spillovers, financial and health crises

M. Karanasos (), S. Yfanti () and John Hunter ()
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M. Karanasos: Brunel University London
S. Yfanti: Loughborough University

Annals of Operations Research, 2022, vol. 313, issue 2, No 21, 1077-1116

Abstract: Abstract This paper studies the US and global economic fundamentals that exacerbate emerging stock markets volatility and can be considered as systemic risk factors increasing financial stability vulnerabilities. We apply the bivariate HEAVY system of daily and intra-daily volatility equations enriched with powers, leverage, and macro-effects that improve its forecasting accuracy significantly. Our macro-augmented asymmetric power HEAVY model estimates the inflammatory effect of US uncertainty and infectious disease news impact on equities alongside global credit and commodity factors on emerging stock index realized volatility. Our study further demonstrates the power of the economic uncertainty channel, showing that higher US policy uncertainty levels increase the leverage effects and the impact from the common macro-financial proxies on emerging markets’ financial volatility. Lastly, we provide evidence on the crucial role of both financial and health crisis events (the 2008 global financial turmoil and the recent Covid-19 pandemic) in raising markets’ turbulence and amplifying the volatility macro-drivers impact, as well.

Keywords: Economic policy uncertainty; Emerging markets; Financial and health crises; Macro-financial linkages; Realized variance; Uncertainty spillovers (search for similar items in EconPapers)
JEL-codes: C22 C58 D80 E44 G01 G15 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (8)

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DOI: 10.1007/s10479-021-04042-y

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