IDEAS home Printed from https://ideas.repec.org/a/gam/jmathe/v10y2022i8p1317-d794584.html
   My bibliography  Save this article

Non-Normal Market Losses and Spatial Dependence Using Uncertainty Indices

Author

Listed:
  • Catalina Bolancé

    (Department of Econometrics, Riskcenter-IREA, University of Barcelona, Av. Diagonal, 690, 08034 Barcelona, Spain
    These authors contributed equally to this work.)

  • Carlos Alberto Acuña

    (Department of Econometrics, Riskcenter-IREA, University of Barcelona, Av. Diagonal, 690, 08034 Barcelona, Spain
    These authors contributed equally to this work.)

  • Salvador Torra

    (Department of Econometrics, Riskcenter-IREA, University of Barcelona, Av. Diagonal, 690, 08034 Barcelona, Spain)

Abstract

We analyse spatial dependence between the risks of stock markets. An alternative definition of neighbour is used and is based on a proposed exogenous criterion obtained with a dynamic Google Trends Uncertainty Index (GTUI) designed specifically for this analysis. We show the impact of systemic risk on spatial dependence related to the most significant financial crises from 2005: the Lehman Brothers bankruptcy, the sub-prime mortgage crisis, the European debt crisis, Brexit and the COVID-19 pandemic, which also affected the financial markets. The risks are measured using the monthly variance or volatility and the monthly Value-at-Risk (VaR) of the filtered losses associated with the analysed indices. Given that the analysed risk measures follow non-normal distributions and the number of neighbours changes over time, we carry out a simulation study to check how these characteristics affect the results of global and local inference using Moran’s I statistic. Lastly, we analyse the global spatial dependence between the risks of 46 stock markets and we study the local spatial dependence for 10 benchmark stock markets worldwide.

Suggested Citation

  • Catalina Bolancé & Carlos Alberto Acuña & Salvador Torra, 2022. "Non-Normal Market Losses and Spatial Dependence Using Uncertainty Indices," Mathematics, MDPI, vol. 10(8), pages 1-23, April.
    • Handle: RePEc:gam:jmathe:v:10:y:2022:i:8:p:1317-:d:794584
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2227-7390/10/8/1317/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2227-7390/10/8/1317/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Samarakoon, Lalith P., 2017. "Contagion of the eurozone debt crisis," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 49(C), pages 115-128.
    2. Lien, Donald & Lee, Geul & Yang, Li & Zhang, Yuyin, 2018. "Volatility spillovers among the U.S. and Asian stock markets: A comparison between the periods of Asian currency crisis and subprime credit crisis," The North American Journal of Economics and Finance, Elsevier, vol. 46(C), pages 187-201.
    3. Li, Yan & Liang, Chao & Ma, Feng & Wang, Jiqian, 2020. "The role of the IDEMV in predicting European stock market volatility during the COVID-19 pandemic," Finance Research Letters, Elsevier, vol. 36(C).
    4. Holger Breinlich & Elsa Leromain & Dennis Novy & Thomas Sampson & Ahmed Usman, 2018. "The Economic Effects of Brexit: Evidence from the Stock Market," Fiscal Studies, John Wiley & Sons, vol. 39(4), pages 581-623, December.
    5. Chopra, Monika & Mehta, Chhavi, 2022. "Is the COVID-19 pandemic more contagious for the Asian stock markets? A comparison with the Asian financial, the US subprime and the Eurozone debt crisis," Journal of Asian Economics, Elsevier, vol. 79(C).
    6. Yang, Zhenlin, 2015. "LM tests of spatial dependence based on bootstrap critical values," Journal of Econometrics, Elsevier, vol. 185(1), pages 33-59.
    7. Castelnuovo, Efrem & Tran, Trung Duc, 2017. "Google It Up! A Google Trends-based Uncertainty index for the United States and Australia," Economics Letters, Elsevier, vol. 161(C), pages 149-153.
    8. Wahbeeah Mohti & Andreia Dionísio & Paulo Ferreira & Isabel Vieira, 2019. "Contagion of the Subprime Financial Crisis on Frontier Stock Markets: A Copula Analysis," Economies, MDPI, vol. 7(1), pages 1-14, February.
    9. Scott R. Baker & Nicholas Bloom & Steven J. Davis, 2016. "Measuring Economic Policy Uncertainty," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(4), pages 1593-1636.
    10. Oussama Tilfani & Paulo Ferreira & My Youssef El Boukfaoui, 2021. "Dynamic cross-correlation and dynamic contagion of stock markets: a sliding windows approach with the DCCA correlation coefficient," Empirical Economics, Springer, vol. 60(3), pages 1127-1156, March.
    11. Li, Hong, 2020. "Volatility spillovers across European stock markets under the uncertainty of Brexit," Economic Modelling, Elsevier, vol. 84(C), pages 1-12.
    12. Asgharian, Hossein & Hess, Wolfgang & Liu, Lu, 2013. "A spatial analysis of international stock market linkages," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 4738-4754.
    13. Hachmi Ben Ameur & Waël Louhichi, 2022. "The Brexit impact on European market co-movements," Annals of Operations Research, Springer, vol. 313(2), pages 1387-1403, June.
    14. Dimitriou, Dimitrios & Kenourgios, Dimitris & Simos, Theodore, 2013. "Global financial crisis and emerging stock market contagion: A multivariate FIAPARCH–DCC approach," International Review of Financial Analysis, Elsevier, vol. 30(C), pages 46-56.
    15. Scott R Baker & Nicholas Bloom & Steven J Davis & Kyle Kost & Marco Sammon & Tasaneeya Viratyosin & Jeffrey Pontiff, 0. "The Unprecedented Stock Market Reaction to COVID-19," The Review of Asset Pricing Studies, Society for Financial Studies, vol. 10(4), pages 742-758.
    16. Alexander J. McNeil & Rüdiger Frey & Paul Embrechts, 2015. "Quantitative Risk Management: Concepts, Techniques and Tools Revised edition," Economics Books, Princeton University Press, edition 2, number 10496.
    17. Ghirelli, Corinna & Pérez, Javier J. & Urtasun, Alberto, 2019. "A new economic policy uncertainty index for Spain," Economics Letters, Elsevier, vol. 182(C), pages 64-67.
    18. 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.
    19. Richard C. K. Burdekin & Eric Hughson & Jinlin Gu, 2018. "A first look at Brexit and global equity markets," Applied Economics Letters, Taylor & Francis Journals, vol. 25(2), pages 136-140, January.
    20. Samitas, Aristeidis & Tsakalos, Ioannis, 2013. "How can a small country affect the European economy? The Greek contagion phenomenon," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 25(C), pages 18-32.
    21. repec:bla:manchs:v:70:y:2002:i:0:p:87-106 is not listed on IDEAS
    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. Oussama Tilfani & Paulo Ferreira & Andreia Dionisio & My Youssef El Boukfaoui, 2020. "EU Stock Markets vs. Germany, UK and US: Analysis of Dynamic Comovements Using Time-Varying DCCA Correlation Coefficients," JRFM, MDPI, vol. 13(5), pages 1-23, May.
    2. Chopra, Monika & Mehta, Chhavi, 2022. "Is the COVID-19 pandemic more contagious for the Asian stock markets? A comparison with the Asian financial, the US subprime and the Eurozone debt crisis," Journal of Asian Economics, Elsevier, vol. 79(C).
    3. Abduraimova, Kumushoy, 2022. "Contagion and tail risk in complex financial networks," Journal of Banking & Finance, Elsevier, vol. 143(C).
    4. Himounet, Nicolas, 2022. "Searching the nature of uncertainty: Macroeconomic and financial risks VS geopolitical and pandemic risks," International Economics, Elsevier, vol. 170(C), pages 1-31.
    5. Gu, Xin & Zhang, Weiqiang & Cheng, Sang, 2021. "How do investors in Chinese stock market react to external uncertainty? An event study to the Sino-US disputes," Pacific-Basin Finance Journal, Elsevier, vol. 68(C).
    6. Donadelli, Michael & Gufler, Ivan & Pellizzari, Paolo, 2020. "The macro and asset pricing implications of rising Italian uncertainty: Evidence from a novel news-based macroeconomic policy uncertainty index," Economics Letters, Elsevier, vol. 197(C).
    7. Fangzhou Xie, 2020. "Pruned Wasserstein Index Generation Model and wigpy Package," Papers 2004.00999, arXiv.org, revised Jul 2020.
    8. Apostolakis, George N. & Floros, Christos & Gkillas, Konstantinos & Wohar, Mark, 2021. "Political uncertainty, COVID-19 pandemic and stock market volatility transmission," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 74(C).
    9. Xie, Fangzhou, 2020. "Wasserstein Index Generation Model: Automatic generation of time-series index with application to Economic Policy Uncertainty," Economics Letters, Elsevier, vol. 186(C).
    10. Corinna Ghirelli & María Gil & Javier J. Pérez & Alberto Urtasun, 2021. "Measuring economic and economic policy uncertainty and their macroeconomic effects: the case of Spain," Empirical Economics, Springer, vol. 60(2), pages 869-892, February.
    11. Liow, Kim Hiang & Song, Jeongseop, 2020. "Dynamic interdependence of ASEAN5 with G5 stock markets," Emerging Markets Review, Elsevier, vol. 45(C).
    12. Nikolay Hristov & Markus Roth, 2019. "Uncertainty Shocks and Financial Crisis Indicators," CESifo Working Paper Series 7839, CESifo.
    13. Marina Diakonova & Luis Molina & Hannes Mueller & Javier J. Pérez & Cristopher Rauh, 2022. "The information content of conflict, social unrest and policy uncertainty measures for macroeconomic forecasting," Working Papers 2232, Banco de España.
    14. Azqueta-Gavaldon, Andres, 2023. "Political referenda and investment: Evidence from Scotland," European Journal of Political Economy, Elsevier, vol. 80(C).
    15. Efrem Castelnuovo, 2019. "Yield Curve and Financial Uncertainty: Evidence Based on US Data," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 52(3), pages 323-335, September.
    16. Camilo J. Vázquez‐Ordás & Myriam García‐Olalla, 2020. "The Differential Impact of Brexit on Banking: UK vs. Europe," Global Policy, London School of Economics and Political Science, vol. 11(5), pages 569-577, November.
    17. Altig, Dave & Baker, Scott & Barrero, Jose Maria & Bloom, Nicholas & Bunn, Philip & Chen, Scarlet & Davis, Steven J. & Leather, Julia & Meyer, Brent & Mihaylov, Emil & Mizen, Paul & Parker, Nicholas &, 2020. "Economic uncertainty before and during the COVID-19 pandemic," Journal of Public Economics, Elsevier, vol. 191(C).
    18. Ballester, Laura & Díaz-Mendoza, Ana Carmen & González-Urteaga, Ana, 2019. "A systematic review of sovereign connectedness on emerging economies," International Review of Financial Analysis, Elsevier, vol. 62(C), pages 157-163.
    19. Sharif, Arshian & Aloui, Chaker & Yarovaya, Larisa, 2020. "COVID-19 pandemic, oil prices, stock market, geopolitical risk and policy uncertainty nexus in the US economy: Fresh evidence from the wavelet-based approach," International Review of Financial Analysis, Elsevier, vol. 70(C).
    20. Yizhuo Zhang & Rui Chen & Ding Ma, 2020. "A Weighted and Directed Perspective of Global Stock Market Connectedness: A Variance Decomposition and GERGM Framework," Sustainability, MDPI, vol. 12(11), pages 1-23, June.

    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:gam:jmathe:v:10:y:2022:i:8:p:1317-:d:794584. 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: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    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.