Prague Economic Papers 2019, 28(4):402-415 | DOI: 10.18267/j.pep.680

Global Risk Factors and Stock Returns during Bull and Bear Market Conditions: Evidence from Emerging Economies in Europe

Sercan Demiralay
Faculty of Economics, Administrative and Social Sciences, Istanbul Gelisim University, Turkey

This paper explores the dependence of emerging European stock markets (Bulgaria, Croatia, Czech Republic, Hungary, Poland, Romania, Russia, Turkey and Ukraine) on global risk factors (changes in gold prices, US implied volatility index and oil prices) based on daily data from 6 January 2004 to 31 December 2013. We employ a quantile regression model to analyse how the global factors affect stock returns under different market circumstances, such as bearish (lower quantiles), normal (intermediate quantile) and bullish (higher quantiles) times. Empirical results reveal that the response of stock markets is heterogeneous; larger equity markets, such as Poland, Russia and Turkey, are highly sensitive to the global factors while Bulgaria is the least sensitive. Overall, the dependence on gold and oil prices is positive while the dependence on US stock market uncertainty is negative. Additionally, in most of the cases, the dependence intensifies during bear market conditions, in which stock prices fall.

Keywords: Global risk factors, Emerging markets, Quantile regression
JEL classification: C21, G10, G11

Accepted: April 23, 2018; Published: September 3, 2019  Show citation

ACS AIP APA ASA Harvard Chicago IEEE ISO690 MLA NLM Turabian Vancouver
Demiralay, S. (2019). Global Risk Factors and Stock Returns during Bull and Bear Market Conditions: Evidence from Emerging Economies in Europe. Prague Economic Papers, 28(4), 402-415. doi: 10.18267/j.pep.680
Download citation
  • BibTeX (.bib)
  • Bookends (.ris)
  • EasyBib (.ris)
  • EndNote (.enw)
  • EndNote 8 (.xml)
  • ISI WoS (.isi)
  • Medlars (.medlars)
  • Mendeley (.ris)
  • MODS (.xml)
  • Papers (.ris)
  • RefWorks (.txt)
  • RefManager (.ris)
  • RIS (.ris)
  • MS Word (.xml)
  • Zotero (.ris)
    • Open full article

    References

    1. Aloui, R., Hammoudeh, S., Nguyen, D. K. (2013). A Time-varying Copula Approach to Oil and Stock Market Dependence: The Case of Transition Economies. Energy Economics, 39, 208-221, https://doi.org/10.1016/j.eneco.2013.04.012 Go to original source...
    2. Baur, D. G., Lucey, B. M. (2010). Is Gold a Hedge or a Safe Haven? An Analysis of Stocks, Bonds and Gold. Financial Review, 45(2), 217-229, https://doi.org/10.1111/j.1540-6288.2010.00244.x Go to original source...
    3. Baur, D. G., McDermott, T. K. (2010). Is Gold a Safe Haven? International Evidence. Journal of Banking & Finance, 34(8), 1886-1898, https://doi.org/10.1016/j.jbankfin.2009.12.008 Go to original source...
    4. Bekaert, G., Hoerova, M., Lo Duca, M. (2013). Risk, Uncertainty and Monetary Policy. Journal of Monetary Economics, 60(7), 771-788, https://doi.org/10.1016/j.jmoneco.2013.06.003 Go to original source...
    5. Bloom, N. (2009). The Impact of Uncertainty Shock. Econometrica, 77(3), 623-685, https://doi.org/10.3982/ecta6248 Go to original source...
    6. Buchinsky, M. (1995). Estimating the Asymptotic Covariance Matrix for Quantile Regression Models a Monte Carlo Study. Journal of Econometrics, 68(2), 303-338, https://doi.org/10.1016/0304-4076(94)01652-g Go to original source...
    7. Chevapatrakul, T. (2015). Monetary Environments and Stock Returns: International Evidence Based on the Quantile Regression Technique. International Review of Financial Analysis, 38, 83-108, https://doi.org/10.1016/j.irfa.2015.01.013 Go to original source...
    8. Ciner, C., Gurdgiev, C., Lucey, B. M. (2013). Hedges and Safe Havens: An Examination of Stocks, Bonds, Gold, Oil and Exchange Rates. International Review of Financial Analysis, 29, 202-211, https://doi.org/10.1016/j.irfa.2012.12.001 Go to original source...
    9. Claessens, S., Kose, M. A., Terrones, M. E. (2012). How do Business and Financial Cycles Interact? Journal of International Economics, 87(1), 178-190, https://doi.org/10.1016/j.jinteco.2011.11.008 Go to original source...
    10. Coeurdacier, N., Rey, H., Winant, P. (2015). Financial Integration and Growth in a Risky World. National Bureau of Economic Research. Cambridge Working Paper No. 21817, https://doi.org/10.3386/w21817 Go to original source...
    11. Cong, R. G., Wei, Y. M., Jiao, J. L., Fan, Y. (2008). Relationships between Oil Price Shocks and Stock Market: An Empirical Analysis from China. Energy Policy, 36(9), 3544-3553, https://doi.org/10.1016/j.enpol.2008.06.006 Go to original source...
    12. Dées, S., Zorell, N. (2012). Business Cycle Synchronisation: Disentangling Trade and Financial Linkages. Open Economies Review, 23(4), 623-643, https://doi.org/10.1007/s11079-011-9208-2 Go to original source...
    13. Demiralay, S., Bayraci, S. (2015). Central and Eastern European Stock Exchanges under Stress: A Range-Based Volatility Spillover Framework. Finance a Uver, 65(5), 411.
    14. Dickey, D. A., Fuller, W. A. (1979). Distribution of the Estimators for Autoregressive Time Series with a Unit Root. Journal of the American Statistical Association, 74(366), 427, https://doi.org/10.2307/2286348 Go to original source...
    15. Driesprong, G., Jacobsen, B., Maat, B. (2008). Striking Oil: Another Puzzle? Journal of Financial Economics, 89(2), 307-327, https://doi.org/10.1016/j.jfineco.2007.07.008 Go to original source...
    16. El Hedi Arouri, M., Lahiani, A., Nguyen, D. K. (2015). World Gold Prices and Stock Returns in China: Insights for Hedging and Diversification Strategies. Economic Modelling, 44, 273-282, https://doi.org/10.1016/j.econmod.2014.10.030 Go to original source...
    17. Filis, G. (2010). Macro Economy, Stock Market and Oil Prices: Do Meaningful Relationships Exist among their Cyclical Fluctuations? Energy Economics, 32(4), 877-886, https://doi.org/10.1016/j.eneco.2010.03.010 Go to original source...
    18. Filis, G., Chatziantoniou, I. (2014). Financial and Monetary Policy Responses to Oil Price Shocks: Evidence from Oil-importing and Oil-exporting Countries. Review of Quantitative Finance and Accounting, 42(4), 709-729, https://doi.org/10.1007/s11156-013-0359-7 Go to original source...
    19. Giot, P. (2005). Relationships between Implied Volatility Indexes and Stock Index Returns. The Journal of Portfolio Management, 31(3), 92-100, https://doi.org/10.3905/jpm.2005.500363 Go to original source...
    20. Gürgün, G., Ünalmiş, İ. (2014). Is Gold a Safe Haven against Equity Market Investment in Emerging and Developing Countries? Finance Research Letters, 11(4), 341-348, https://doi.org/10.1016/j.frl.2014.07.003 Go to original source...
    21. Hood, M., Malik, F. (2013). Is Gold the Best Hedge and a Safe Haven Under Changing Stock Market Volatility? Review of Financial Economics, 22(2), 47-52, https://doi.org/10.1016/j.rfe.2013.03.001 Go to original source...
    22. Imbs, J. (2006). The Real Effects of Financial Integration. Journal of International Economics, 68(2), 296-324, https://doi.org/10.1016/j.jinteco.2005.05.003 Go to original source...
    23. Jones, C. M., Kaul, G. (1996). Oil and the Stock Markets. The Journal of Finance, 51(2), 463, https://doi.org/10.2307/2329368 Go to original source...
    24. Kilian, L., Park, C. (2009). The Impact of Oil Price Shocks on the U.S. Stock Market. International Economic Review, 50(4), 1267-1287, https://doi.org/10.1111/j.1468-2354.2009.00568.x Go to original source...
    25. Koenker, R., Bassett, G. (1978). Regression Quantiles. Econometrica, 46(1), 33, https://doi.org/10.2307/1913643 Go to original source...
    26. Koenker, R., Hallock, K. (2001). Quantile Regression: An Introduction. Journal of Economic Perspectives, 15(4), 43-56, https://doi.org/10.1257/jep.15.4.143 Go to original source...
    27. Lee, Y. H., Chiou, J. S. (2011). Oil Sensitivity and its Asymmetric Impact on the Stock Market. Energy, 36(1), 168-174, https://doi.org/10.1016/j.energy.2010.10.057 Go to original source...
    28. Lin, C. C., Fang, C. R., Cheng, H. P. (2014). The Impact of Oil Price Shocks on the Returns in China's Stock Market. Emerging Markets Finance and Trade, 50(5), 193-205.
    29. Lucey, B. M., Li, S. (2015). What Precious Metals Act as Safe Havens, and When? Some US Evidence. Applied Economics Letters, 22(1), 35-45, https://doi.org/10.1080/13504851.2014.920471 Go to original source...
    30. Mensi, W., Hammoudeh, S., Reboredo, J. C., Nguyen, D. K. (2014). Do Global Factors Impact BRICS Stock Markets? A Quantile Regression Approach. Emerging Markets Review, 19, 1-17, https://doi.org/10.1016/j.ememar.2014.04.002 Go to original source...
    31. Mensi, W., Hammoudeh, S., Yoon, S. M., Nguyen, D. K. (2016). Asymmetric Linkages between BRICS Stock Returns and Country Risk Ratings: Evidence from Dynamic Panel Threshold Models. Review of International Economics, 24(1), 1-19, https://doi.org/10.1111/roie.12201 Go to original source...
    32. Naifar, N. (2016). Do Global Risk Factors and Macroeconomic Conditions Affect Global Islamic Index Dynamics? A Quantile Regression Approach. The Quarterly Review of Economics and Finance, 61, 29-39, https://doi.org/10.1016/j.qref.2015.10.004 Go to original source...
    33. Narayan, P. K., Narayan, S. (2010). Modelling the Impact of Oil Prices on Vietnam's Stock Prices. Applied Energy, 87(1), 356-361, https://doi.org/10.1016/j.apenergy.2009.05.037 Go to original source...
    34. Reboredo, J. C., Uddin, G. S. (2016). Do Financial Stress and Policy Uncertainty have an Impact on the Energy and Metals Markets? A Quantile Regression Approach. International Review of Economics & Finance, 43, 284-298, https://doi.org/10.1016/j.iref.2015.10.043 Go to original source...
    35. Sarwar, G. (2012). Is VIX an Investor Fear Gauge in BRIC Equity Markets? Journal of Multinational Financial Management, 22(3), 55-65, https://doi.org/10.1016/j.mulfin.2012.01.003 Go to original source...
    36. Tsai, C. L. (2015). How do U.S. Stock Returns Respond Differently to Oil Price Shocks Pre-crisis, within the Financial Crisis, and Post-crisis? Energy Economics, 50, 47-62, https://doi.org/10.1016/j.eneco.2015.04.012 Go to original source...
    37. Tsai, I. C. (2014). Spillover of Fear: Evidence from the Stock Markets of Five Developed Countries. International Review of Financial Analysis, 33, 281-288, https://doi.org/10.1016/j.irfa.2014.03.007 Go to original source...
    38. Whaley, R. E. (2000). The Investor Fear Gauge. The Journal of Portfolio Management, 26(3), 12-17, https://doi.org/10.3905/jpm.2000.319728 Go to original source...
    39. Whaley, R. E. (2009). Understanding the VIX. The Journal of Portfolio Management, 35(3), 98-105, https://doi.org/10.3905/jpm.2009.35.3.098 Go to original source...
    40. Zhu, H., Guo, Y., You, W., Xu, Y. (2016). The Heterogeneity Dependence between Crude Oil Price Changes and Industry Stock Market Returns in China: Evidence from a Quantile Regression Approach. Energy Economics, 55, 30-41, https://doi.org/10.1016/j.eneco.2015.12.027 Go to original source...

    This is an open access article distributed under the terms of the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License (CC BY NC ND 4.0), which permits non-comercial use, distribution, and reproduction in any medium, provided the original publication is properly cited. No use, distribution or reproduction is permitted which does not comply with these terms.


    Return to the content