Economics at your fingertips  

Directional predictability and time-varying spillovers between stock markets and economic cycles

Stelios Bekiros, Syed Jawad Hussain Shahzad (), Jose Arreola-Hernandez and Mobeen Ur Rehman

Economic Modelling, 2018, vol. 69, issue C, 301-312

Abstract: We examine the nonlinear dependence structure and causal nexus between business cycles, stock market returns and asset return volatility for the US economy. We implement two novel methodologies, namely quantile-on-quantile analysis and cross-quantilogram to account for tail dependence and spillovers across quantile ranges. We find evidence of statistically significant spillover effects from extreme equity market returns and their corresponding volatility to specific stages of business cycles. The sensitivity of returns and volatility to business cycle shocks is only evident for extreme quantiles. These findings indicate the importance of modeling the nonlinearity and tail behaviour when analyzing the relationships between equity markets and business cycles. Financial and monetary policy regulators may use the dynamics of spillover predictability and influence between the equity market returns, their volatility and business cycles to exert some degree of control upon business cycle formation and development.

Keywords: Business cycles; Stock markets; Quantile-on-quantile analysis; Cross-quantilogram; Spillover predictability (search for similar items in EconPapers)
JEL-codes: B26 E32 G15 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6) Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Directional predictability and time-varying spillovers between stock markets and economic cycles (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

DOI: 10.1016/j.econmod.2017.10.003

Access Statistics for this article

Economic Modelling is currently edited by S. Hall and P. Pauly

More articles in Economic Modelling from Elsevier
Bibliographic data for series maintained by Haili He ().

Page updated 2021-01-23
Handle: RePEc:eee:ecmode:v:69:y:2018:i:c:p:301-312