Stock market uncertainty and economic fundamentals: an entropy-based approach. Issue 7 (3rd July 2019)

• Record Type: Journal Article
• Authors: Ahn, K.; Lee, D.; Sohn, S.; Yang, B.
• Is Part Of: Quantitative finance. Volume 19:Issue 7(2019)
• Page Start: 1151
• Page End: 1163
• Publication Date: 2019-07-03
• Subjects: Entropy -- Stock market uncertainty -- Economic activities -- Systemic risk; C32 -- E44; Finance -- Periodicals; Business mathematics -- Periodicals; Finance -- Mathematical models -- Periodicals; Investments -- Mathematics -- Periodicals; Economics -- Periodicals; Finances -- Modèles mathématiques -- Périodiques; 332.015118
• DOI: 10.1080/14697688.2019.1579922
• Languages: English
• ISSNs: 1469-7688

Abstract

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.