Global Production Linkages and Stock Market Comovement
51 Pages Posted: 23 Feb 2022 Last revised: 7 Oct 2022
Date Written: October 4, 2022
Abstract
Although real integration conceptually plays an important role for the comovement of international equity markets, documenting this link empirically has proven challenging. We construct a new dataset of theory-guided, relevant measures of bilateral trade in final and intermediate goods and services. With these measures, we provide evidence of a strong link between changes in international trade – in particular global value chains – and equity market comovement. These results suggest that supply chain disruptions and reshoring, for instance due to political tensions, war, and the COVID-19 crisis, might affect the interconnections between stock markets via rippling through the global production network.
Keywords: financial integration, global value chains, international asset pricing, international trade, real integration, spillovers, stock market comovement, supply chains
JEL Classification: F10, F36, F65, G10, G12, G15
Suggested Citation: Suggested Citation