Measuring the G20 Stock Market Return Transmission Mechanism: Evidence from the R2 Connectedness Approach

This study examines the contemporaneous return transmission mechanism across the G20 stock market returns employing a novel R2 connectedness framework which combines the network approach of Kenett et al. (2010, 2015) and the connectedness approach of Diebold and Yilmaz (2012, 2014). The employed daily dataset covers G20 stock market returns from January 3rd, 2000 until June 30th, 2022. We find that the dynamic total connectedness is heterogeneous over time and economic event dependent. Furthermore, pairwise R2 decomposed connectedness measures with respect to different crisis periods and dynamic net total directional connectedness measures are discussed. We illustrate the reliability of our findings by considering a battery of robustness tests.