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Exploring the impact of economic recession indicators on global financial markets: A QVAR analysis

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  • Bulut, Emre
  • Marangoz, Cumali

Abstract

This paper attempts to examine the impact of the connection and spillover effects between nine major stock exchange indices (namely, the US, the UK, China, Canada, Switzerland, Germany, India, Japan, and Hong Kong) and two economic recession indicators, specifically the SRRI and GRI, by employing the quantile vector autoregression (QVAR) method from May 1992 to December 1993. In a globally connected world, it is essential to comprehend the transmission and magnitude of shocks among financial markets and to understand spillover effects. To the best of our knowledge, this study is the first to comprehensively analyze the impact of the SAHM Rule Recession (SRRI) and GDP-Based Recession (GRI) Indices on the US stock index and its subsequent influence on worldwide financial markets. The findings demonstrate that economic recession indices significantly affect stock indices, especially in countries with close economic ties, such as China, Hong Kong, and India. In addition, the GRI implies the forward-looking nature of stock markets. Moreover, the US and UK are the major transmitters of recessionary shocks, indicating their crucial role in the global economic network.

Suggested Citation

  • Bulut, Emre & Marangoz, Cumali, 2025. "Exploring the impact of economic recession indicators on global financial markets: A QVAR analysis," International Review of Financial Analysis, Elsevier, vol. 99(C).
    • Handle: RePEc:eee:finana:v:99:y:2025:i:c:s1057521925000535
    DOI: 10.1016/j.irfa.2025.103966
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    More about this item

    Keywords

    Stock exchange indices; Economic recession indicators; Quantile vector autoregression (QVAR); Sahm Rule Recession Indicator (SRRI); GDP-based Recession Index (GRI);
    All these keywords.

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G01 - Financial Economics - - General - - - Financial Crises
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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