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

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All Science Journal Classification (ASJC) codes

  • Finance
  • Economics, Econometrics and Finance(all)

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