Predictability of the Realised Volatility of International Stock Markets Amid Uncertainty Related to Infectious Diseases

In the context of the great turmoil in the financial markets caused by the COVID-19 pandemic, the predictability of daily infectious diseases-related uncertainty (EMVID) for international stock markets volatilities is examined using heterogeneous autoregressive realised variance (HAR-RV) models. A recursive estimation approach in the short-, medium- and long-run out-of-sample predictability is considered and the main findings show that the EMVID index plays a significant role in forecasting the volatility of international stock markets. Furthermore, the results suggest that the most vulnerable stock markets to EMVID are those in Singapore, Portugal and The Netherlands. The implications of these results for investors and portfolio managers amid high levels of uncertainty resulting from infectious diseases are discussed.

On the Safe-Haven Ability of Bitcoin, Gold, and Commodities for International Stock Markets: Evidence from Spillover Index Analysis

Stock market is susceptible to various external shocks for its tight dependence on economic fundamentals, financial speculation, and fragile emotions in massive traders, making it a very risky market for investors. In this paper, we aim to identify whether commonly recognized safe-haven assets, that is, bitcoin, gold, and commodities, can provide investors with effective hedging utility in international stock markets, especially during periods of extreme market turbulence. By using the spillover index method based on the TVP-VAR model, we find that firstly, bitcoin, gold, and commodities can only offer weak hedging effects on stock markets. Furthermore, their abilities to act as a safe haven are ranked as: commodities > gold > bitcoin. Secondly, in general, we have observed the increasing hedging ability of these safe-haven assets in times of extreme market turmoil. Thirdly, among international stock and safe-haven asset markets, the world and the developed stock markets act as the net spillover transmitters, while bitcoin, gold, and commodities are the net recipients. Lastly, the total spillover effects are time-varying and increase significantly after the outbreak of extreme events.

How Do Shocks Arise and Spread Across Stock Markets? A Microstructure Perspective

We study intraday, market-wide shocks to stock prices, market liquidity, and trading activity on international stock markets and assess the relevance of recent theories on “liquidity dry-ups” in explaining such shocks. Market-wide price shocks are prevalent and large, with rapid spillovers across markets. However, price shocks are predominantly driven by information; they do not revert and are often associated with macroeconomic news. Furthermore, liquidity shocks are typically isolated and transitory. Overall, we find little evidence for liquidity effects fomenting price shocks or non-fundamental contagion, nor for alternative explanations. Market-wide liquidity dry-ups are thus of little concern to international investors. This paper was accepted by Karl Diether, finance.

Extreme Dependence in International Stock Markets

Extreme Dependence in International Stock Markets

Extreme Dependence in International Stock Markets

Extreme Dependence in International Stock Markets