International stock return predictability: The role of U.S. uncertainty spillover

Fuwei Jiang, Hongkui Liu, Jiasheng Yu and Huajing Zhang

Pacific-Basin Finance Journal, 2023, vol. 82, issue C

Abstract: This paper explores the implications of U.S. uncertainty for cross-country asset pricing. We propose a global common spillover index of U.S. uncertainty (GSIU) based on the Partial Least Square method, and show that this index is a powerful predictor of aggregate stock returns around the globe, both in- and out-of-sample. Additionally, we find that GSIU affects stock returns through both cash flow and discount rate channels. Furthermore, our index is linked to well-known pricing factors, namely that an increase in GSIU is generally associated with a deteriorating macroeconomic condition, higher levels of stock market volatility and economic policy uncertainty, increased disaster risk, as well as pessimistic investor sentiment, both domestically and internationally.

Keywords: U.S. uncertainty spillover; International stock markets; Return predictability; Partial Least Square (search for similar items in EconPapers)
JEL-codes: G12 G15 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0927538X23002329
Full text for ScienceDirect subscribers only

Related works:
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: https://EconPapers.repec.org/RePEc:eee:pacfin:v:82:y:2023:i:c:s0927538x23002329

DOI: 10.1016/j.pacfin.2023.102161

Access Statistics for this article

Pacific-Basin Finance Journal is currently edited by K. Chan and S. Ghon Rhee

More articles in Pacific-Basin Finance Journal from Elsevier
Bibliographic data for series maintained by Catherine Liu ().