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What global economic factors drive emerging Asian stock market returns? Evidence from a dynamic model averaging approach

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  • Dong, Xiyong
  • Yoon, Seong-Min
Abstract
Due to marketization and globalization, emerging Asian stock markets are influenced by numerous global factors, such as the business cycle, uncertainty in economic and monetary policy, financial and commodity markets, and investor sentiment. This study explores the global economic factors that significantly impact on emerging Asian stock market returns, and especially those that were important during the financial crisis, by applying a dynamic model averaging (DMA) approach. The advantage of this approach is that it takes account of the fact that forecasting models and their coefficients can change over time. However, unlike existing DMA studies that consider only forecasted asset prices, we analyse both the in-sample relationship and out-of-sample predictability of the impact of global factors on stock returns, according to the sensitivity of stock markets. In terms of in-sample relationship, we find that developed stock and exchange rate markets show a strong relationship with emerging Asian stock markets due to financial market integration. In contrast, the forecasting power of economic fundamentals is highest out-of-sample because stock markets reflect real economic activity.

Suggested Citation

  • Dong, Xiyong & Yoon, Seong-Min, 2019. "What global economic factors drive emerging Asian stock market returns? Evidence from a dynamic model averaging approach," Economic Modelling, Elsevier, vol. 77(C), pages 204-215.
    • Handle: RePEc:eee:ecmode:v:77:y:2019:i:c:p:204-215
    DOI: 10.1016/j.econmod.2018.09.003
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    2. Oguzhan Ozcelebi & José A. Pérez‐Montiel, 2023. "Examination of the impacts of the immediate interest rate of the United States and the VIX on the Dow Jones Islamic Market Index," Bulletin of Economic Research, Wiley Blackwell, vol. 75(4), pages 1157-1180, October.
    3. Wang, Xichen & Yan, Ji (Karena) & Yan, Cheng & Gozgor, Giray, 2021. "Emerging stock market exuberance and international short-term flows," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 75(C).
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    5. Han Liu & Peng Yang & Haiyan Song & Doris Chenguang Wu, 2024. "Global and domestic economic policy uncertainties and tourism stock market: Evidence from China," Tourism Economics, , vol. 30(3), pages 567-591, May.
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    More about this item

    Keywords

    Emerging Asian stock market; Dynamic model averaging; In-sample; Out-of-sample; Global economic factor; Transmission mechanism;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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