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Ripples into waves: trade networks, economic activity, and asset prices

Chang, Jeffery (Jinfan), Du, Huancheng, Lou, Dong ORCID: 0000-0002-5623-4338 and Polk, Christopher (2022) Ripples into waves: trade networks, economic activity, and asset prices. Journal of Financial Economics, 145 (1). 217 - 238. ISSN 0304-405X

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Identification Number: 10.1016/j.jfineco.2021.08.005

Abstract

We exploit information in sovereign CDS spreads and the international trade network to provide causal evidence of the propagation of global economic shocks. We show that trade links are an important source of shock transmission using the natural experiments of the Japanese tsunami and the COVID-19 lockdown in China. We then confirm more general and gradual information flows along the trade network by showing extensive country-level credit/equity cross-sectional return predictability. News about country fundamentals flows primarily from importers to exporters, depends on both direct and indirect links in the trade network, and is magnified by the exporting country's financial vulnerability.

Item Type: Article
Official URL: https://www.sciencedirect.com/journal/journal-of-f...
Additional Information: © 2021 Elsevier B.V.
Divisions: Finance
Subjects: H Social Sciences > HG Finance
JEL classification: G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates
G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets
F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F40 - General
Date Deposited: 11 Jun 2021 08:45
Last Modified: 18 Feb 2024 21:54
URI: http://eprints.lse.ac.uk/id/eprint/110838

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