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This chapter examines dynamic connectedness among emerging Asian equity markets as well as explores their linkages vis-à-vis other major global markets. We find that international equity markets are tightly integrated. Measuring connectedness based on a generalized Vector Autoregressive (VAR) model, more than half of all total forecast error variance in equity return and volatility shocks come from other markets as opposed to country own shocks. When examining the degree of connectedness over time, we find that international stock markets have become increasingly connected, with a gentle upward trend since the Asian financial crisis (AFC) but with a rapid burst during the global financial crisis (GFC). Despite the growing importance of Asian emerging markets in the world economy, we find that their influence on advanced economies are still relatively small, with no significant increase over time. During the past decade, advanced markets have been consistently net transmitters of shocks while emerging Asian markets act as net receivers. Based on the nature of equity shock spillovers, we also find that advanced countries are still tightly connected among themselves while intraregional connectedness within Asia remains strong. By investigating whether uncertainty plays an important role in explaining the degree of stock market connectedness, we find that economic policy uncertainty (EPU) from the US is an important source of financial shock spillover for the majority of international equity markets. In contrast, US financial market uncertainty as proxied by the VIX index drives equity market spillovers only among advanced economies.

This paper aims to explore the impact of cycle superposition on bank liquidity risk under different levels of financial openness so that banks can better manage their liquidity risk. Meanwhile, it can also provide some ideas for banks in other emerging economies to better cope with the shocks of the global financial cycle.

Employing the monthly data of 16 commercial banks in China from 2005 to 2021 and based on the time-varying parameter vector autoregressive model with stochastic volatility (TVP-SV-VAR) model, the authors first examine whether the cycle superposition can magnify the impact of China's financial cycle on bank liquidity risk. Subsequently, the authors investigate the impact of different levels of financial openness on cycle superposition amplification. Finally, the shock of the financial cycle of the world's major economies on the liquidity risk of Chinese banks is also empirically analyzed.

Cycle superposition can magnify the impact of China's financial cycle on bank liquidity risk. However, there are significant differences under different levels of financial openness. Compared with low financial openness, in the period of high financial openness, the magnifying effect of cycle superposition is strengthened in the short term but obviously weakened in the long run. In addition, the authors' findings also demonstrate that although the United States is the main shock country, the influence of other developed economies, such as Japan and Eurozone countries, cannot be ignored.

Firstly, the cycle superposition index is constructed. Secondly, the authors supplement the literature by providing evidence that the association between cycle superposition and bank liquidity risk also depends on financial openness. Finally, the dominant countries of the global financial cycle have been rejudged.

This study examines the extreme quantile connectedness and spillovers between West Texas Intermediate (WTI) crude oil futures and ten Vietnamese stock market sectors. Knowledge of such links is important to both investors and policymakers in understanding the transmission of shocks across markets.

The authors employ the extreme quantile connectedness methodology of Ando et al. (2022).

Initial results show that the size of spillovers is higher during bearish markets than bullish markets and under major financial, political, energy and pandemic events. The oil market is a net receiver of spillovers during downward markets and net contributors during upward markets. The banking sector is a net contributor of spillovers, whereas consumer discretionary and consumer staples are net receivers for different quantiles. The role of the remaining sectors as net receivers/contributors is sensitive to the quantiles. Oil has a large spillover effect on the electricity sector for all quantiles. Comparing all crises, oil offers the best hedging effectiveness to the Vietnamese sector during the coronavirus disease 2019 (COVID-19) crisis. Moreover, oil was a cheap hedge asset during oil crises. Finally, oil provides the highest hedging effectiveness for healthcare during the global financial crisis (GFC) and consumer staples during the European debt crisis (EDC), oil crisis and COVID-19.

Acknowledging the presence of heterogeneity in the relation between oil and economic sectors under different market conditions, this study is the first to examine the extreme quantile connectedness between oil and Vietnamese sectors.

This study aims to investigate the transmission of shock between the oil market and the Islamic and conventional stock markets of the Gulf Cooperation Council (GCC) countries during the oil shocks of 2008 and 2014.

This study uses two models. First, the dynamic conditional correlation–generalized autoregressive conditionally heteroskedastic model has been used to capture the fundamental contagion effects between the oil market and the Islamic and conventional stock markets during the tranquil and turmoil-crisis periods of 2008-2014. Second, the filter of Kalman has been used to capture the effects of pure contagion between the oil market and the GCC Islamic and conventional stock markets. The authors analyze the dynamic correlation between forecasting errors of oil returns and stock returns of GCC Islamic and GCC conventional indices.

The main findings of this investigation are: first, the estimation of the dynamic conditional correlation– generalized autoregressive conditionally heteroskedastic model for oil market and the Islamic and conventional stock markets proves that the Islamic and conventional stock markets and oil market displayed a significant increase in the dynamic correlation during the turmoil period, from mid-2008 and mid-2014. This proves the existence of contagion between the markets studied. Second, the authors analyze the dynamic correlation between forecasting errors of oil returns and stock returns of GCC Islamic and GCC conventional indices. They show a strong increase in the correlation coefficients between the oil market and the conventional GCC stock markets, and between the conventional and Islamic GCC stock markets during the oil crisis of 2014. However, there is no change in regime in the figure of the correlation coefficient between the oil market and the GCC Islamic stock markets during the 2008 financial crisis. This pure contagion is mainly attributed to the herding bias in 2014 oil crisis.

This study contributes to identifying the contribution of herding bias on the volatility transmission between the oil markets, and the GCC Islamic and conventional stock market, especially during two controversial shocks: the 2008 oil-price increase and the 2014 oil drop.

The intention of the empirics is to contribute to the general understanding of investor responses to market price shocks. The authors review assumptions about investor behavior in response to price shocks and investigate alternative rebalancing heuristics.

The authors use market data over 40 years to define market shocks. Portfolio rebalancing implements constrained Markowitz mean-variance (MV) heuristics.

Momentum rebalancing in portfolio management outperforms contrarian rebalancing in the study interval. Sensitivity analysis by decade, sector constraints and proportion of security holdings bought or sold continue to support momentum rebalancing.

The results are consistent with under-responding to price shocks at consensus levels in financial markets. The theoretical background provides a basis for experimental lab studies of shocks of different magnitudes under conditions in which participants have information on the levels of other participants and a condition in which they can only observe their previous estimates.

Managing portfolios in the face of price disturbances of different magnitudes is informed by empirical studies and their implications for investor behavior.

This is the first study the authors can locate that uses market data with alternative rebalancing heuristics to estimate price returns from the respective heuristics over a time interval of 40 years. The authors support the results with sensitivity estimates and consider implications for the underlying agent heuristics in light of background studies.

This paper aims at looking into the transmission of shocks between bond and oil markets using a bivariate GARCH (BEKK and DCC) model. As lots of financial assets have been exchanged due to these index returns, it is essential for financial market participants to figure out the mechanism of volatility transmission through time and via these series for the purpose of taking optimal decisions of portfolio allocation. The outcomes drawn reveal an important volatility transmission between sovereign bond and oil indices, with great sensitivity during and after the subprime crisis period.

In this context, we propose our hypotheses. Indeed, our study aims to see whether the financial crisis has been responsible for the sharp drop in oil prices since October 2008. To this end, we suggest, in this paper, the empirical study of the shock transmission between the bond and oil markets, using BEK-GARCH and DCC models. To our knowledge, this is the first document using the BEKK-GARCH and the DCC models in studying the shock transmission between a sovereign bond and oil indices.

We have noticed that in the event of a disruption in the bond market, oil prices respond to these shocks in the short term. It has also been emphasized, however, that this relationship has exacerbated if the period has extended. This makes us conclude that the financial market situation affects the oil price only throughout the crisis period; and that this situation is causally significant only in the event of a severe crisis, such as those of subprime and sovereign debt.

The global financial system has been going through an acute crisis since mid-2007. This crisis, initially occurred only in the US real estate market, progressively affects the global financial system, and is now becoming a general economic crisis. The objective of this work is to analyze the effects of the current financial market disturbance on oil prices based on econometric models in order to promote the proper functioning of this study.

Might the impact of the financial stress on exchange markets be asymmetric and exposed to regime changes? Departing from the existing literature, highlighting that the domestic and foreign financial stress in terms of money market have substantial effects on exchange market, this paper aims to investigate the impacts of the bond yield spreads of three emerging countries (Mexico, Russia, and South Korea) on their exchange market pressure indices using monthly observations for the period 2010:01–2019:12. Additionally, the paper analyses the impact of bond yield spread of the US on the exchange market pressure indices of the three mentioned emerging countries. The authors hypothesized whether the negative and positive changes in the bond yield spreads have varying effects on exchange market pressure indices.

To address the research question, we measure the bond yield spread of the selected countries by using the interest rate spread between 10-year and 3-month treasury bills. At the same time, the exchange market pressure index is proxied by the index introduced by Desai et al. (2017). We base the empirical analysis on nonlinear vector autoregression (VAR) models and an asymmetric quantile-based approach.

The results of the impulse response functions indicate that increases/decreases in the bond yield spreads of Mexico, Russia and South Korea raise/lower their exchange market pressure, and the effects of shocks in the bond yield spreads of the US also lead to depreciation/appreciation pressures in the local currencies of the emerging countries. The quantile connectedness analysis, which allows for the role of regimes, reveals that the weights of the domestic and foreign bond yield spread in explaining variations of exchange market pressure indices are higher when exchange market pressure indices are not in a normal regime, indicating the role of extreme development conditions in the exchange market. The quantile regression model underlines that an increase in the domestic bond yield spread leads to a rise in its exchange market pressure index during all exchange market pressure periods in Mexico, and the relevant effects are valid during periods of high exchange market pressure in Russia. Our results also show that Russia differs from Mexico and South Korea in terms of the factors influencing the demand for domestic currency, and we have demonstrated the role of domestic macroeconomic and financial conditions in surpassing the effects of US financial stress. More specifically, the impacts of the domestic and foreign financial stress vary across regimes and are asymmetric.

This study enriches the literature on factors affecting the exchange market pressure of emerging countries. The results have significant economic implications for policymakers, indicating that the exchange market pressure index may trigger a financial crisis and economic recession.

We document how inflation expectations evolved in the United States during the fall of 1933 using narrative evidence from historical news accounts and the forecasts of contemporary business analysts. We find that inflation expectations, after rising substantially during the spring of 1933, moderated in the fall in response to mixed messages from the Roosevelt Administration. The narrative accounts and our econometric model connect the dramatic swings in output growth in 1933 – the rapid recovery in the spring and the setback in the fall – to these sudden movements in inflation expectations.

The purpose of this paper is to verify if, in case of a shock event, there are types of corporate announcement that may influence stock price behaviour better than others. The authors also try to determine if the communication strategy may be affected by the type of shock event.

Using the event study analysis, the authors estimate the Cumulative Abnormal Returns associated to the stocks of the selected firms hit by a shock event, in order to visualise the effectiveness of different types of corporate announcements after the event.

The research confirms the negative effect of shock events on corporate stocks’ value. Moreover, the study envisages that financial market rewards companies that assume consistent and reassuring announcements during the event window. The authors also find that the effectiveness of corporate announcements is related to the shock’s typology.

The study employs a small and unbalanced sample of shock events. Moreover, it does not exist a generally accepted criterion to define and classify corporate announcements and the authors cannot exclude the influence of the media in the categorisation process of the announcements.

Since shock events may threat firms’ survival, by knowing which response strategy fits better a shock situation, a manager can assess the potential effect of his communication options and choose the right type of announcement.

There is a lack of literature on this theme, in particular on the effects that the different corporate announcements following a shock event may have on shareholders’ value.