Stock market uncertainty and economic fundamentals: an entropy-based approach

K. Ahn, D. Lee, S. Sohn, B. Yang

Research output: Contribution to journalArticle

3 Citations (Scopus)

Abstract

This study investigates the effects of stock market uncertainty on economic fundamentals, represented by economic activities and systemic risk, in China. To capture the uncertainty in the Chinese stock market precisely, we use the entropy measure through symbolic time-series analysis. The empirical findings reveal strong spillover effects from stock market uncertainty to economic fundamentals. Specifically, an uncertainty shock generates (i) a short-term decline in industrial production, (ii) a rapid drop and rebound in the composite leading indicator, and (iii) an increase in systemic risk. To understand these findings, we suggest and validate the transmission channel through changes in consumption and investment.

Original languageEnglish
Pages (from-to)1151-1163
Number of pages13
JournalQuantitative Finance
Volume19
Issue number7
DOIs
Publication statusPublished - 2019 Jul 3

Fingerprint

Market uncertainty
Uncertainty
Stock market
Systemic risk
Economic fundamentals
Entropy
Chinese stock market
Industrial production
Rebound
Time series analysis
China
Transmission channel
Economic activity
Composite leading indicator
Spillover effects

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics, Econometrics and Finance(all)

Cite this

Ahn, K. ; Lee, D. ; Sohn, S. ; Yang, B. / Stock market uncertainty and economic fundamentals : an entropy-based approach. In: Quantitative Finance. 2019 ; Vol. 19, No. 7. pp. 1151-1163.
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Stock market uncertainty and economic fundamentals : an entropy-based approach. / Ahn, K.; Lee, D.; Sohn, S.; Yang, B.

In: Quantitative Finance, Vol. 19, No. 7, 03.07.2019, p. 1151-1163.

Research output: Contribution to journalArticle

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