Why do U.S. uncertainties drive stock market spillovers? International evidence

The extant literature examines the impact of US uncertainty on international stock markets without paying much attention to the inherent spillovers between the US and the stock markets. This study investigates the role of US uncertainty in driving global stock market spillover from the US. To this end, we consider a wide range of stock markets around the world and three news-based uncertainties from the US, namely economic policy uncertainty (EPU), equity market uncertainty (EMU), and equity market volatility (EMV). We find that the US uncertainties significantly explain the spillovers from the US to global stock markets. This causality from US uncertainties depends upon certain country-characteristics. Specifically, the US uncertainties better explain the spillovers between the US and target countries when those countries have a higher degree of financial openness, trade linkage with the US, and vulnerable fiscal position. However, improved stock market development levels in the target countries mitigate their stock markets' vulnerability to US uncertainty shocks. The study offers potential insights and implications for investors and policymakers.