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Global Production Linkages and Stock Market Comovement

Author

Listed:
  • Raphael Auer

    (Bank for International Settlements (BIS))

  • Bruce Muneaki Iwadate

    (CUNY Baruch College)

  • Andreas Schrimpf

    (Bank for International Settlements (BIS) - Monetary and Economic Department; CREATES - Aarhus University)

  • Alexander F. Wagner

    (University of Zurich - Department of Banking and Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Swiss Finance Institute)

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 real integration – in particular global value chains – and equity market comovement. This also holds when controlling for financial openness and other factors that could confound the role of real openness. These results suggest that supply chain disruptions, for instance due to political tensions and the COVID-19 crisis, might also affect the interconnections between stock markets via rippling through the global production network.

Suggested Citation

  • Raphael Auer & Bruce Muneaki Iwadate & Andreas Schrimpf & Alexander F. Wagner, 2022. "Global Production Linkages and Stock Market Comovement," Swiss Finance Institute Research Paper Series 22-18, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp2218
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    More about this item

    Keywords

    financial integration; global value chains; international asset pricing; international trade; real integration; spillovers; stock market comovement; supply chains;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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