What Drives Emerging Stock Market Returns? A Factor-Augmented VAR Approach
- Authors
- Kwon, Dohyoung
- Issue Date
- Apr-2022
- Publisher
- ROUTLEDGE JOURNALS, TAYLOR & FRANCIS LTD
- Keywords
- Emerging stock returns; F36; F65; factor-augmented VAR; G15; global economic factors
- Citation
- Emerging Markets Finance and Trade, v.58, no.5, pp.1215 - 1232
- Journal Title
- Emerging Markets Finance and Trade
- Volume
- 58
- Number
- 5
- Start Page
- 1215
- End Page
- 1232
- URI
- https://scholarworks.bwise.kr/gachon/handle/2020.sw.gachon/83892
- DOI
- 10.1080/1540496X.2020.1860748
- ISSN
- 1540-496X
- Abstract
- This paper explores the dynamic relationship between global economic factors and emerging stock returns within a factor-augmented VAR model. I find that favorable global growth and stock market shocks have significant positive effects on emerging equity returns, whereas global uncertainty and US dollar exchange rate shocks cause a substantial fall in the returns. Global oil shocks lead to a transient increase in emerging stock returns, followed by a gradual decline. Variance decomposition analysis implies that the global uncertainty shock is the most important in the short run, explaining more than 30% of the fluctuation in emerging stock returns, while the US dollar exchange rate shock becomes the most critical in the long run, explaining more than 40%. These findings have crucial implications for international investors, as well as for policymakers in emerging market economies. © 2021 Taylor & Francis Group, LLC.
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