[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/ces/ceswps/_10492.html
   My bibliography  Save this paper

Global Production Linkages and Stock Market Comovement

Author

Listed:
  • Raphael Auer
  • Bruce Iwadate
  • Andreas Schrimpf
  • Alexander F. Wagner
  • Raphael A. Auer
Abstract
Although real integration conceptually plays an important role for the comovement of international equity markets, documenting this link empirically has proven challenging. We construct a new dataset of theory-guided, relevant measures of bilateral trade in final and intermediate goods and services. With these measures, we provide evidence of a strong link between changes in international trade – in particular global value chains – and equity market comovement. These results suggest that supply chain disruptions and reshoring, for instance due to political tensions, war, and the COVID-19 crisis, might affect the interconnections between stock markets via rippling through the global production network.

Suggested Citation

  • Raphael Auer & Bruce Iwadate & Andreas Schrimpf & Alexander F. Wagner & Raphael A. Auer, 2023. "Global Production Linkages and Stock Market Comovement," CESifo Working Paper Series 10492, CESifo.
    • Handle: RePEc:ces:ceswps:_10492
    as

    Download full text from publisher

    File URL: https://www.cesifo.org/DocDL/cesifo1_wp10492.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Valentina Bruno & Se-Jik Kim & Hyun Shin, 2018. "Exchange Rates and the Working Capital Channel of Trade Fluctuations," AEA Papers and Proceedings, American Economic Association, vol. 108, pages 531-536, May.
    2. Cieslak, Anna & Schrimpf, Andreas, 2019. "Non-monetary news in central bank communication," Journal of International Economics, Elsevier, vol. 118(C), pages 293-315.
    3. Marcel P. Timmer & Erik Dietzenbacher & Bart Los & Robert Stehrer & Gaaitzen J. Vries, 2015. "An Illustrated User Guide to the World Input–Output Database: the Case of Global Automotive Production," Review of International Economics, Wiley Blackwell, vol. 23(3), pages 575-605, August.
    4. Forbes, Kristin J. & Chinn, Menzie David, 2003. "A Decomposition Of Global Linkages In Financial Markets Over Time," Santa Cruz Department of Economics, Working Paper Series qt4391b5w7, Department of Economics, UC Santa Cruz.
    5. Raphael A. Auer & Andrei A. Levchenko & Philip Sauré, 2019. "International Inflation Spillovers through Input Linkages," The Review of Economics and Statistics, MIT Press, vol. 101(3), pages 507-521, July.
    6. Ammer, John & Mei, Jianping, 1996. "Measuring International Economic Linkages with Stock Market Data," Journal of Finance, American Finance Association, vol. 51(5), pages 1743-1763, December.
    7. Robert Ready & Nikolai Roussanov & Colin Ward, 2017. "Commodity Trade and the Carry Trade: A Tale of Two Countries," Journal of Finance, American Finance Association, vol. 72(6), pages 2629-2684, December.
    8. Julian di Giovanni & Andrei A. Levchenko & Isabelle Mejean, 2018. "The Micro Origins of International Business-Cycle Comovement," American Economic Review, American Economic Association, vol. 108(1), pages 82-108, January.
    9. Julian Di Giovanni & Galina Hale, 2022. "Stock Market Spillovers via the Global Production Network: Transmission of U.S. Monetary Policy," Journal of Finance, American Finance Association, vol. 77(6), pages 3373-3421, December.
    10. Pukthuanthong, Kuntara & Roll, Richard, 2009. "Global market integration: An alternative measure and its application," Journal of Financial Economics, Elsevier, vol. 94(2), pages 214-232, November.
    11. Karolyi, G Andrew & Stulz, Rene M, 1996. "Why Do Markets Move Together? An Investigation of U.S.-Japan Stock Return Comovements," Journal of Finance, American Finance Association, vol. 51(3), pages 951-986, July.
    12. François Longin & Bruno Solnik, 2001. "Extreme Correlation of International Equity Markets," Journal of Finance, American Finance Association, vol. 56(2), pages 649-676, April.
    13. Kalemli-Ozcan, Sebnem & Papaioannou, Elias & Peydró, José-Luis, 2010. "What lies beneath the euro's effect on financial integration? Currency risk, legal harmonization, or trade?," Journal of International Economics, Elsevier, vol. 81(1), pages 75-88, May.
    14. Pollet, Joshua M. & Wilson, Mungo, 2010. "Average correlation and stock market returns," Journal of Financial Economics, Elsevier, vol. 96(3), pages 364-380, June.
    15. Tim Bollerslev & George Tauchen & Hao Zhou, 2009. "Expected Stock Returns and Variance Risk Premia," The Review of Financial Studies, Society for Financial Studies, vol. 22(11), pages 4463-4492, November.
    16. Geert Bekaert & Robert J. Hodrick & Xiaoyan Zhang, 2009. "International Stock Return Comovements," Journal of Finance, American Finance Association, vol. 64(6), pages 2591-2626, December.
    17. Lucey, Brian M. & Zhang, QiYu, 2010. "Does cultural distance matter in international stock market comovement? Evidence from emerging economies around the world," Emerging Markets Review, Elsevier, vol. 11(1), pages 62-78, March.
    18. Ole E. Barndorff-Nielsen & Neil Shephard, 2004. "Econometric Analysis of Realized Covariation: High Frequency Based Covariance, Regression, and Correlation in Financial Economics," Econometrica, Econometric Society, vol. 72(3), pages 885-925, May.
    19. Desai, Mihir A. & Hines Jr., James R., 2008. "Market reactions to export subsidies," Journal of International Economics, Elsevier, vol. 74(2), pages 459-474, March.
    20. Stefano Ramelli & Alexander F Wagner, 2020. "Feverish Stock Price Reactions to COVID-19," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 9(3), pages 622-655.
    21. Fama, Eugene F. & French, Kenneth R., 1989. "Business conditions and expected returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 25(1), pages 23-49, November.
    22. Bernard Herskovic & Bryan Kelly & Hanno Lustig & Stijn Van Nieuwerburgh, 2020. "Firm Volatility in Granular Networks," Journal of Political Economy, University of Chicago Press, vol. 128(11), pages 4097-4162.
    23. Kristin J. Forbes & Menzie D. Chinn, 2004. "A Decomposition of Global Linkages in Financial Markets Over Time," The Review of Economics and Statistics, MIT Press, vol. 86(3), pages 705-722, August.
    24. Bonadio, Barthélémy & Huo, Zhen & Levchenko, Andrei A. & Pandalai-Nayar, Nitya, 2021. "Global supply chains in the pandemic," Journal of International Economics, Elsevier, vol. 133(C).
    25. Huang, Yi & Lin, Chen & Liu, Sibo & Tang, Heiwai, 2023. "Trade networks and firm value: Evidence from the U.S.-China trade war," Journal of International Economics, Elsevier, vol. 145(C).
    26. Raphael A. Auer & Claudio Borio & Andrew Filardo, 2017. "The Globalisation of Inflation: The Growing Importance of Global Value Chains," CESifo Working Paper Series 6387, CESifo.
    27. Aggarwal, Raj & Kearney, Colm & Lucey, Brian, 2012. "Gravity and culture in foreign portfolio investment," Journal of Banking & Finance, Elsevier, vol. 36(2), pages 525-538.
    28. Thomas J Flavin & Margaret J Hurley & Fabrice Rousseau, 2002. "Explaining Stock Market Correlation: A Gravity Model Approach," Manchester School, University of Manchester, vol. 70(S1), pages 87-106.
    29. Karen K. Lewis, 2011. "Global Asset Pricing," Annual Review of Financial Economics, Annual Reviews, vol. 3(1), pages 435-466, December.
    30. Chen, Nai-fu & Zhang, Feng, 1997. "Correlations, trades and stock returns of the Pacific-Basin markets," Pacific-Basin Finance Journal, Elsevier, vol. 5(5), pages 559-577, December.
    31. John Y. Campbell, Robert J. Shiller, 1988. "The Dividend-Price Ratio and Expectations of Future Dividends and Discount Factors," The Review of Financial Studies, Society for Financial Studies, vol. 1(3), pages 195-228.
    32. Wagner, Alexander F. & Zeckhauser, Richard J. & Ziegler, Alexandre, 2018. "Company stock price reactions to the 2016 election shock: Trump, taxes, and trade," Journal of Financial Economics, Elsevier, vol. 130(2), pages 428-451.
    33. Eppinger, Peter S. & Felbermayr, Gabriel & Krebs, Oliver & Kukharskyy, Bohdan, 2020. "Covid-19 shocking global value chains," Kiel Working Papers 2167, Kiel Institute for the World Economy (IfW Kiel).
    34. Lieven Baele & Pilar Soriano, 2010. "The determinants of increasing equity market comovement: economic or financial integration?," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 146(3), pages 573-589, September.
    35. Stefano Ramelli & Alexander F Wagner, 0. "Feverish Stock Price Reactions to COVID-19," Review of Corporate Finance Studies, Oxford University Press, vol. 9(3), pages 622-655.
    36. Geert Bekaert & Campbell R. Harvey & Andrea Kiguel & Xiaozheng Wang, 2016. "Globalization and Asset Returns," Annual Review of Financial Economics, Annual Reviews, vol. 8(1), pages 221-288, October.
    37. Andrew Ang & Geert Bekaert, 1999. "International Asset Allocation with Time-Varying Correlations," NBER Working Papers 7056, National Bureau of Economic Research, Inc.
    38. Timmer, Marcel P. & Los, Bart & Stehrer, Robert & de Vries, Gaaitzen J., 2016. "An Anatomy of the Global Trade Slowdown based on the WIOD 2016 Release," GGDC Research Memorandum GD-162, Groningen Growth and Development Centre, University of Groningen.
    39. G. Andrew Karolyi, 2003. "Does International Financial Contagion Really Exist?," International Finance, Wiley Blackwell, vol. 6(2), pages 179-199, July.
    40. Helene Rey, 2013. "Dilemma not trilemma: the global cycle and monetary policy independence," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 1-2.
    41. Jeffrey D. Sachs & Andrew Warner, 1995. "Economic Reform and the Process of Global Integration," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1, 25th A), pages 1-118.
    42. Gita Gopinath & Jeremy C. Stein, 2018. "Trade Invoicing, Bank Funding, and Central Bank Reserve Holdings," AEA Papers and Proceedings, American Economic Association, vol. 108, pages 542-546, May.
    43. repec:bla:manchs:v:70:y:2002:i:0:p:87-106 is not listed on IDEAS
    44. Robert J. Richmond, 2019. "Trade Network Centrality and Currency Risk Premia," Journal of Finance, American Finance Association, vol. 74(3), pages 1315-1361, June.
    45. Johnson, Robert C. & Noguera, Guillermo, 2012. "Accounting for intermediates: Production sharing and trade in value added," Journal of International Economics, Elsevier, vol. 86(2), pages 224-236.
    46. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Julian Di Giovanni & Galina Hale, 2022. "Stock Market Spillovers via the Global Production Network: Transmission of U.S. Monetary Policy," Journal of Finance, American Finance Association, vol. 77(6), pages 3373-3421, December.
    2. Chuluun, Tuugi, 2017. "Global portfolio investment network and stock market comovement," Global Finance Journal, Elsevier, vol. 33(C), pages 51-68.
    3. Mobarek, Asma & Muradoglu, Gulnur & Mollah, Sabur & Hou, Ai Jun, 2016. "Determinants of time varying co-movements among international stock markets during crisis and non-crisis periods," Journal of Financial Stability, Elsevier, vol. 24(C), pages 1-11.
    4. Simon Stevenson, 2016. "Macro-Economic and Financial Determinants of Comovement across Global Real Estate Security Markets," Journal of Real Estate Research, American Real Estate Society, vol. 38(4), pages 595-624.
    5. Wagner, Alexander F. & Schrimpf, Paul & Petzev, Ivan, 2015. "Has the Pricing of Stocks Become More Global?," CEPR Discussion Papers 10966, C.E.P.R. Discussion Papers.
    6. Stijn Claessens & M Ayhan Kose, 2017. "Asset prices and macroeconomic outcomes: a survey," BIS Working Papers 676, Bank for International Settlements.
    7. Cakici, Nusret & Zaremba, Adam, 2023. "Misery on Main Street, victory on Wall Street: Economic discomfort and the cross-section of global stock returns," Journal of Banking & Finance, Elsevier, vol. 149(C).
    8. Vidal-Llana, Xenxo & Uribe, Jorge M. & Guillén, Montserrat, 2023. "European stock market volatility connectedness: The role of country and sector membership," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 82(C).
    9. Gagnon, Louis & Karolyi, G. Andrew, 2006. "Price and Volatility Transmission across Borders," Working Paper Series 2006-5, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    10. Guesmi, Khaled & Nguyen, Duc Khuong, 2011. "How strong is the global integration of emerging market regions? An empirical assessment," Economic Modelling, Elsevier, vol. 28(6), pages 2517-2527.
    11. Jiang, Zhengyang & Richmond, Robert J., 2023. "Origins of international factor structures," Journal of Financial Economics, Elsevier, vol. 147(1), pages 1-26.
    12. Stijn Claessens & M Ayhan Kose, 2018. "Frontiers of macrofinancial linkages," BIS Papers, Bank for International Settlements, number 95.
    13. Baele, Lieven & Inghelbrecht, Koen, 2010. "Time-varying integration, interdependence and contagion," Journal of International Money and Finance, Elsevier, vol. 29(5), pages 791-818, September.
    14. Heil, Thomas L.A. & Peter, Franziska J. & Prange, Philipp, 2022. "Measuring 25 years of global equity market co-movement using a time-varying spatial model," Journal of International Money and Finance, Elsevier, vol. 128(C).
    15. Ozcan Ceylan, 2015. "Limited information-processing capacity and asymmetric stock correlations," Quantitative Finance, Taylor & Francis Journals, vol. 15(6), pages 1031-1039, June.
    16. Bartesaghi, Paolo & Clemente, Gian Paolo & Grassi, Rosanna & Luu, Duc Thi, 2022. "The multilayer architecture of the global input-output network and its properties," Journal of Economic Behavior & Organization, Elsevier, vol. 204(C), pages 304-341.
    17. Cappariello, Rita & Franco-Bedoya, Sebastian & Gunnella, Vanessa & Ottaviano, Gianmarco I. P., 2020. "Rising protectionism and global value chains: quantifying the general equilibrium effects," LSE Research Online Documents on Economics 108423, London School of Economics and Political Science, LSE Library.
    18. Michel Beine & Bertrand Candelon, 2011. "Liberalisation and stock market co-movement between emerging economies," Quantitative Finance, Taylor & Francis Journals, vol. 11(2), pages 299-312.
    19. Graham, Michael & Kiviaho, Jarno & Nikkinen, Jussi, 2012. "Integration of 22 emerging stock markets: A three-dimensional analysis," Global Finance Journal, Elsevier, vol. 23(1), pages 34-47.
    20. Cai, Yijie & Chou, Ray Yeutien & Li, Dan, 2009. "Explaining international stock correlations with CPI fluctuations and market volatility," Journal of Banking & Finance, Elsevier, vol. 33(11), pages 2026-2035, November.

    More about this item

    Keywords

    financial integration; global value chains; international asset pricing; international trade; real integration; spillovers; stock market comovement; supply chains;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_10492. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Klaus Wohlrabe (email available below). General contact details of provider: https://edirc.repec.org/data/cesifde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.