Associate Professor Fang Tong Publishes Research in International Authoritative Finance Journal Journal of International Money and Finance

Recently, the collaborative paper Global trade network and the cross-section of international stock market returns by Associate Professor Fang Tong from the School of Economics at Shandong University, Dr. Liu Peng from Guangdong University of Finance and Economics and Professor Su Zhi from the School of Statistics and Mathematics at Central University of Finance and Economics was published online in Journal of International Money and Finance, an international authoritative finance journal, with Fang Tong as the first author.

Over the past few decades, the wave of globalization (especially trade integration) has been the most obvious trend and feature of the world economy. Most economies have accelerated the process of integration into globalization and improved the level of economic development and people's well-being through channels such as productivity improvement, market friction mitigation and foreign capital introduction brought by globalization. However, globalization has also exposed economies more to external economic and financial shocks. Existing studies have begun to pay attention to the impact of globalization on international asset prices, mainly focusing on foreign exchange markets and derivative markets, but whether globalization can explain the cross-sectional returns of global stock markets remains to be discussed.

From the perspective of global trade network centrality, this paper constructs a global trade network and calculates trade centrality indicators based on quarterly bilateral trade data of 40 representative economies around the world from 1997 to 2024, explores whether trade network centrality can explain the cross-sectional returns of global stock markets, and explores the underlying economic explanations. This paper finds that trade network centrality can explain the cross-sectional returns of global stock markets. Economies located in the center of the trade network have lower stock market returns, while economies located on the edge of the trade network have higher stock market returns. This paper also constructs corresponding investment portfolios, confirming that investment portfolios based on trade centrality indicators can bring significant excess returns. This paper explains the empirical results from channels such as domestic consumption fluctuation and risk sharing, bilateral conflict risk and information asymmetry mitigation.

The contributions of this paper are mainly twofold: first, providing a new perspective for understanding the cross-sectional returns of global stock markets from the trade network level and new evidence for explaining the cross-sectional returns of global stock markets; second, providing various explanations for the international asset pricing effect of trade network centrality, combining trade network with international risk sharing and market information diffusion research, and providing new cross-country evidence for the correlation between international conflicts and trade.