Spatial spillover around G20 stock markets and impact on the return: a spatial econometrics approach

ABSTRACT

This paper investigates the spatial return spillover among G20 financial market and the factors of return. To achieve this object, we define the new gravitational space weight matrix, and construct the spatial autoregressive panel model (SAR). The results show that: (i) the new gravitational space weight matrix is more advantageous in capturing the multidimensional spatial spillover effects among stock markets; (ii) government debt, inflation and macroeconomic performance are significantly positively correlated with stock returns, while the real interest rate and stock market volatility have a negative effect on stock returns.

KEYWORDS:

• Space weight matrix
• G20 stock markets
• multidimensional spatial effect
• SAR model

JEL CLASSIFICATION:

• G15
• B23
• C31

Acknowledgments

This paper was supported by grants from the National Natural Science Foundation of China (Grant No. 71671030, 71571038)

Disclosure statement

The authors declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper.

Notes

¹ Quarterly returns are the average of the daily returns in each quarter.

² The classical Hausman test is no longer valid for the random effects of space. We refer to the space Hausman test proposed by Chen, Long, and Lin (2012) to test the random effects of the spatial panel model.

Additional information

Funding

This work was supported by the National Natural Science Foundation of China [71571038,71671030].