Stock markets rocked by foreign holdings after good shocks, bad crashes.
The article explores how shocks impact the higher moments of stock market distributions. The researchers developed a new method to analyze the joint distribution of stock market processes in a non-normal setting. They found that large daily returns tend to persist, and foreign holdings can act as a hedge against domestic volatility changes after good shocks but not after crashes. The effect of shocks on the higher moments of the distribution is short-lived.