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- Title
Global Financial Risk, Equity Returns and Economic Activity in Emerging Countries.
- Authors
Horvath, Jaroslav; Yang, Guanyi
- Abstract
International financial integration exposes countries to external shocks. This paper identifies the impact and transmission of global financial risk (GFR) shocks to emerging market economies (EMEs). Heightened GFR significantly raises EME borrowing costs and lowers equity returns, reducing domestic economic activity. We document a novel transmission channel of GFR shocks to EMEs via international capital flows. Countries experiencing larger capital inflows are more affected by GFR fluctuations. Exploring the transmission through capital flows, GFR shocks affect EMEs mainly through their effect on equity returns, instead of country spreads. We show that equity returns contain more information about EME macroeconomic fluctuations than sovereign and corporate bond spreads.
- Subjects
FINANCIAL risk; ECONOMIC activity; CAPITAL movements; BONDS (Finance); CORPORATE bonds
- Publication
Oxford Bulletin of Economics & Statistics, 2024, Vol 86, Issue 3, p672
- ISSN
0305-9049
- Publication type
Article
- DOI
10.1111/obes.12595