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<p>To better understand the complex financial dynamics under increasing global uncertainty, we propose an innovative empirical framework based on multifractal detrended cross-correlation analysis and wavelet coherence. We examine the dynamic cross-correlation relationships among the stock markets of the US, UK, Japan, China, and Australia, and explore the impact of US economic policy uncertainty on these relationships. The results reveal significant intermarket cross-correlations, particularly during influential macroeconomic events such as COVID-19 and the regional capital market turbulence of 2015–2016. We also find that the impact of US economic policy uncertainty on stock market correlations varies over time and is more pronounced in the medium to long term. Specifically, the impact is the largest on the US-UK stock market linkage and the smallest on the US-Japanese stock market linkage. During periods of global crises, such as COVID-19, intermarket correlations tend to be strengthened, while in regional crises, intermarket correlations become weakened. Moreover, the lead-lag relationships between economic uncertainty and intermarket correlations differ depending on the type of crisis. Our findings shed light on how economic uncertainty affects global financial market linkages, offering valuable insights for policymakers and investors.</p>

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Uncovering the Switching Impact of Economic Policy Uncertainty on the Cross-Correlation Between Stock Markets: An Innovative Hurst-Based Wavelet Coherence Approach

  • 期刊论文

  • 发表日期：

    2025年5月3日

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  • Dongkai Zhao,
  • Peizhi Li,
  • Jianing Zheng,
  • Yingqi Lian,
  • Mo Yang

摘要

To better understand the complex financial dynamics under increasing global uncertainty, we propose an innovative empirical framework based on multifractal detrended cross-correlation analysis and wavelet coherence. We examine the dynamic cross-correlation relationships among the stock markets of the US, UK, Japan, China, and Australia, and explore the impact of US economic policy uncertainty on these relationships. The results reveal significant intermarket cross-correlations, particularly during influential macroeconomic events such as COVID-19 and the regional capital market turbulence of 2015–2016. We also find that the impact of US economic policy uncertainty on stock market correlations varies over time and is more pronounced in the medium to long term. Specifically, the impact is the largest on the US-UK stock market linkage and the smallest on the US-Japanese stock market linkage. During periods of global crises, such as COVID-19, intermarket correlations tend to be strengthened, while in regional crises, intermarket correlations become weakened. Moreover, the lead-lag relationships between economic uncertainty and intermarket correlations differ depending on the type of crisis. Our findings shed light on how economic uncertainty affects global financial market linkages, offering valuable insights for policymakers and investors.