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Return spillovers around the globe: A network approach

Štefan Lyócsa (), Tomáš Výrost () and Eduard Baumohl ()

Economic Modelling, 2019, vol. 77, issue C, 133-146

Abstract: We study the connectedness of a sample of 40 stock markets across five continents using daily closing prices and return spillovers based on Granger causality. All possible 1560 return spillovers between 40 markets create a complex network of relationships between equity markets around the world. Apart from analyzing the topological and time-varying properties of the created networks, we also identify the determinants of the connectedness of equity markets over time. Adjusting for non-synchronous trading, our modelling approach leads to evidence that the probability of return spillover from a given stock market to other markets increases with market volatility and market size and decreases with higher foreign exchange volatility. We empirically show that the temporal proximity between closing hours is important for information propagation; therefore, choosing markets that trade during similar hours bears an additional risk to investors because the probability of return spillovers increases.

Keywords: Stock market; Spillovers; Preferential attachment; Temporal proximity; Networks; Non-synchronicity (search for similar items in EconPapers)
JEL-codes: G01 L14 (search for similar items in EconPapers)
Date: 2019
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Working Paper: Return spillovers around the globe: A network approach (2015) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:77:y:2019:i:c:p:133-146

DOI: 10.1016/j.econmod.2017.11.003

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