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Return and Volatility Connectedness between Stock Markets and Macroeconomic Factors in the G-7 Countries

  • Ghulam Abbas
  • Shawkat Hammoudeh
  • Syed Jawad Hussain Shahzad
  • Shouyang Wang
  • Yunjie WeiEmail author
Article
  • 46 Downloads

Abstract

We examine the relationship between return and volatility of the stock markets and macroeconomic fundamentals for the G-7 countries by using monthly data ranging from July 1985 to June 2015. To meet this end, we apply the spillover index approach based on the generalized VAR framework developed by Diebold and Yilmaz (2012, 2014). The empirical analysis shows strong interactions between the returns and volatilities of the G-7 stock markets and the considered set of corresponding macroeconomic factors including industrial production, money supply, interest rates, inflation, oil prices and exchange rates. The return and volatility spillover transmission/reception dynamics of the relationships between these stock markets and the macroeconomic fundamentals have changed after the global financial crisis of 2008. Our findings provide useful insights for investors and policy makers concerned with the unprecedented swings in the stock markets of G-7 countries.

Keywords

G-7 return volatility connectedness macroeconomic factors generalized VAR 

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Copyright information

© Systems Engineering Society of China and Springer-Verlag GmbH Germany, part of Springer Nature 2018

Authors and Affiliations

  • Ghulam Abbas
    • 1
    • 2
  • Shawkat Hammoudeh
    • 3
  • Syed Jawad Hussain Shahzad
    • 4
  • Shouyang Wang
    • 5
    • 6
  • Yunjie Wei
    • 5
    • 6
    • 7
    Email author
  1. 1.School of Economics and ManagementUniversity of Chinese Academy of SciencesBeijingChina
  2. 2.Sukkur Institute of Business AdministrationSukkurPakistan
  3. 3.Lebow College of Business, Drexel University, Philadelphia, United States Energy and Sustainable Development (ESD)Montpellier Business SchoolMontpellierFrance
  4. 4.Energy and Sustainable Development (ESD)Montpellier Business SchoolMontpellierFrance
  5. 5.Academy of Mathematics and Systems ScienceChinese Academy of SciencesBeijingChina
  6. 6.School of Economics and ManagementUniversity of Chinese Academy of SciencesBeijingChina
  7. 7.Center for Forecasting ScienceChinese Academy of SciencesBeijingChina

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