Tail risk spillovers between economic policy uncertainty and stock market returns: Evidence based on TENET approach

Tingcheng Mo, Mengmeng Huangmei, Hong Chen, Kelong Li and Yingbo Ouyang

Finance Research Letters, 2024, vol. 69, issue PB

Abstract: We construct a tail-event-driven network (TENET) to explore the tail risk spillovers between economic policy uncertainty (EPU) and stock market returns (SMR) at three levels: system, region and country. The empirical results show that (i) when major emergencies occur, the tail risk spillovers increase rapidly; (ii) the spillover effects from EPU to SMR are greater than those from SMR to EPU, indicating that EPU exerts a stronger influence; and (iii) both the EPU and SMR of America act as net risk senders, with the EPU of the United States playing a dominant role in the tail risk spillover network.

Keywords: Tail risk spillovers; Economic policy uncertainty; Stock market returns; Major emergencies; TENET (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:69:y:2024:i:pb:s1544612324012339

DOI: 10.1016/j.frl.2024.106204

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