Ripples into waves: trade networks, economic activity, and asset prices
Chang, Jeffery (Jinfan),
Dong Lou and
LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library
We exploit information in sovereign CDS spreads and the international trade network to provide causal evidence of the propagation of global economic shocks. We show that trade links are an important source of shock transmission using the natural experiments of the Japanese tsunami and the COVID-19 lockdown in China. We then confirm more general and gradual information flows along the trade network by showing extensive country-level credit/equity cross-sectional return predictability. News about country fundamentals flows primarily from importers to exporters, depends on both direct and indirect links in the trade network, and is magnified by the exporting country's financial vulnerability.
Keywords: sovereign CDS; return predictability; trade networks; limited attention; information aggregation; 71; 733; 004; Paul Woolley Center (search for similar items in EconPapers)
JEL-codes: F40 G12 G15 (search for similar items in EconPapers)
Pages: 22 pages
New Economics Papers: this item is included in nep-fdg, nep-int and nep-net
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Published in Journal of Financial Economics, 1, July, 2022, 145(1), pp. 217 - 238. ISSN: 0304-405X
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:110838
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