Study identifies delayed reaction of world economies to new information from US industries

English version: Diana Taborda

A study conducted by researchers of the University of Coimbra (UC) reveals that industries in Germany, Canada, China, France, Japan and the United Kingdom show a lag reaction to disturbances in US industries due to delayed information dissemination. This delay in information can be very significant especially for investors, regulators and policy makers. On-time information can provide early identification of local economic downturns that may disrupt financial markets.

“Information assimilated by financial markets does not occur immediately, due to market frictions and the limitations investors face in processing enormous amounts of information. Although the rapid development of information technologies in recent decades has decreased the lag between the exchange of information and its use in pricing systems, this lag still occurs in international markets.”, explains the research team, composed of Ana Sofia Monteiro, Nuno Silva, and Hélder Sebastião, researchers at the Centre for Business and Economics Research (CeBER) and professors of the Faculty of Economics of the University of Coimbra (FEUC).

In this scientific work, the researchers analysed the dissemination of information, through investor transactions, between US industries and six other major economies (Germany, Canada, China, France, Japan and the UK) using an updated database that “incorporates recent periods of stock market turbulence resulting from the introduction of the Euro, the subprime mortgage crisis, the European sovereign debt crisis, the US-China trade tension, Brexit, and the COVID-19 pandemic”.

According to the research team, this study highlighted “that the US plays a leadership role in international markets, particularly in the basic materials (such as metals, chemicals, forest products) and energy industries, which have significant predictive power. The leading role of the US is even more pronounced during recession periods when cross-country correlations are stronger, and information-processing is slower due to the high levels of uncertainty”.

The research has provided insight into the US market at the industry level, since “although the US market is extensively analysed and examined by investors and academics, most of the literature has focused on the micro level of businesses or the macro level of the market as a whole. By analysing the mid-level market (industry), it will be possible to find new answers that allow us to understand how markets incorporate international information”, the team concludes.

The scientific paper "Industry return lead-lag relationships between the US and other major countries" was published in the journal Financial Innovation, and is available here.