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Asian Review of Financial Research, Vol., No..
pp.506~526
pp.506~526
What Drives Emerging Stock Market Returns? A Factor-Augmented VAR Approach
Dohyoung Kwon Investment Policy Division, National Pension Research Institute
This paper explores the dynamic relationship between global economic factors and emerging stock returns within a factor-augmented VAR model. I nd that favorable global growth and stock market shocks have signicant positive eects on emerging equity returns, whereas an unexpected rise in US dollar exchange rate and global pol- icy uncertainty causes a substantial fall in the returns. Oil shocks lead to a transient increase in emerging stock returns, followed by a gradual decline. Variance decompo- sition analysis implies that 80% of the long-term uctuation in emerging stock returns is explained by the global economic shocks. In particular, the US dollar exchange rate shock is the most critical, accounting for 36%, followed by global stock, policy uncer- tainty, and oil shocks, explaining 17%, 15%, and 10%, respectively. These ndings have important implications for international investors, as well as for policy makers in emerging economies.
Dohyoung Kwon
This paper explores the dynamic relationship between global economic factors and emerging stock returns within a factor-augmented VAR model. I nd that favorable global growth and stock market shocks have signicant positive eects on emerging equity returns, whereas an unexpected rise in US dollar exchange rate and global pol- icy uncertainty causes a substantial fall in the returns. Oil shocks lead to a transient increase in emerging stock returns, followed by a gradual decline. Variance decompo- sition analysis implies that 80% of the long-term uctuation in emerging stock returns is explained by the global economic shocks. In particular, the US dollar exchange rate shock is the most critical, accounting for 36%, followed by global stock, policy uncer- tainty, and oil shocks, explaining 17%, 15%, and 10%, respectively. These ndings have important implications for international investors, as well as for policy makers in emerging economies.