Return and volatility connectedness across stock markets: A global perspective

Abstract

ABSTRACT The connectedness of stock markets is inevitable because of the rapid increases in global financialisation, financial liberalisation, and integration of national economies. This study therefore increases the number of stock markets included in the LASSO-VAR model to separately estimate the connectedness of the daily-frequency market returns and volatility of a sample comprising 50 selected stock markets between 2011 and 2021. We observe that the total connectedness index changes substantially over time, exhibiting the highest change during market turbulences, i.e., the beginning of COVID-19. We also show that the transmission of shocks originates from most European markets and then impacting Asian–Pacific markets, although their intensities exhibit significant time variations. Finally, we find that macroeconomic news and uncertainties are drivers of total connectedness, while directional total connectedness is mainly driven by global rather than domestic factors.