Uncertainty and financial asset return spillovers: Are they related? Empirical evidence from three continents

This paper focuses on financial asset return spillovers and economic policy uncertainty spillovers in 3 continents (Europe, America, and Asia) in the last few decades. We examine three financial asset markets (stock, bond, and foreign exchange). Spillovers are measured using the Diebold-Yilmaz spillover index. In the first part, we measure the size of spillovers and find a significant increase in spillovers during the global financial crisis, the European sovereign crisis, and the recent pandemic. In the second part, we test for the effect of uncertainty spillovers on financial asset return spillovers. Using rolling impulse response functions, we obtain the following results: First, the responses of financial markets spillovers to uncertainty spillovers are time-varying and are mostly positive. Second, the highest responses in financial market return spillovers to uncertainty spillovers occur in America and the smallest responses in financial market return spillovers occur in Europe. Third, among the three financial markets, the highest responses apply to the foreign exchange market. Finally, the largest responses during the pandemic apply in Europe.