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Spillover effects of the US stock market and the predictability of returns: international evidence based on daily data

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  • Yi-Chieh Wen
  • Bin Li
  • Xiaoyue Chen
  • Tarlok Singh

Abstract

This paper investigates the spillover effect of lagged US daily returns on stock return predictability across 17 developed markets from January 1st, 1972 through August 31st, 2022. Using daily returns series, we find that lagged US returns is a superior predictor for future returns in international markets while including the lagged domestic returns and considering US negative or extreme returns. The predictive power of lagged US daily returns, nonetheless, substantially weakens during the recent COVID period. Our results imply that the degrees of stock return predictability and spillovers across markets are driven by the evolutionary market conditions, the channels of information transmission, and information leadership.

Suggested Citation

  • Yi-Chieh Wen & Bin Li & Xiaoyue Chen & Tarlok Singh, 2023. "Spillover effects of the US stock market and the predictability of returns: international evidence based on daily data," Applied Economics, Taylor & Francis Journals, vol. 55(45), pages 5251-5266, September.
    • Handle: RePEc:taf:applec:v:55:y:2023:i:45:p:5251-5266
    DOI: 10.1080/00036846.2022.2138818
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