Effects of domestic and foreign financial stress on stock returns in Asia-Pacific countries

This study employs advanced quantile-based methodologies to investigate the effects of domestic and foreign financial stress on stock market performance across 10 Asia–Pacific countries. Using wavelet quantile correlation and multivariate quantile-on-quantile regression models, we analyze the nonlinear, asymmetric, and time–frequency-dependent relationships under varying market conditions. Results show that foreign financial stress exerts a more consistent and pronounced negative impact on stock returns, particularly in export-dependent economies such as Thailand and Korea. In contrast, the effects of domestic financial stress vary by country. Persistent negative impacts are observed in structurally weaker economies like the Philippines, whereas markets such as China, India, and Australia display adaptability, with correlations shifting to neutral or positive under certain conditions. These findings underscore the significant heterogeneity shaped by differences in economic structure, trade exposure, and financial market characteristics. By comparing the effects of both global and domestic financial stress, this study fills an important gap in the literature. The results provide actionable insights for policymakers working to strengthen financial stability and for investors pursuing effective portfolio diversification strategies.