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Measuring the connectedness of global health sector stock markets

Liping Ye and Jiang-Bo Geng

Pacific-Basin Finance Journal, 2021, vol. 68, issue C

Abstract: This paper uses the minimum spanning tree model to investigate the dependency structure and integration degree of the global health sector stock markets. It examines the direction, intensity, time-varying characteristics, and asymmetric effects of return connectedness among these stock markets using the directional connectedness network model. It also explores the hedging and diversification analyses of global health sector stock markets. The empirical results suggest that health sector stock markets of the developing and developed countries show obvious group clustering characteristics, forming a low level of integration between the two groups and a high degree of integration within each group. For the return connectedness network, France, the UK, the US, and Germany are net return transmitters. India, Canada, China, Japan, and South Africa are net return recipients. Meanwhile, return spillovers among health sector stocks in these nine countries have obvious time-varying characteristics. In particular, the 2008 global financial crisis increased the integration level among global health sector stock markets. Moreover, there exists a significant asymmetric effect of return spillover among the global health sector stock markets, and the return spillover intensity in a declining market is significantly higher than it is in favourable market conditions. Finally, diversification evidence shows the optimal hedge ratios and portfolio weights across all nine countries changes over time.

Keywords: Health sector; Dependency structure; Return spillover; Hedging; Minimum spanning tree; Connectedness network (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:68:y:2021:i:c:s0927538x21001220

DOI: 10.1016/j.pacfin.2021.101615

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