Asymmetric shock persistence in the OECD Stock Exchanges: New Insight from Quantile Exponential Smooth Transition Autoregression Approach

Abstract This study offers novel empirical insights into the asymmetric persistence of shocks in OECD stock markets over the period 1994–2023, employing a nonlinear quantile autoregression framework built on the Quantile Exponential Smooth Transition Autoregression (QESTAR) method. By capturing the complexities of market responses to both the direction and magnitude of shocks, as well as asymmetric adjustment speeds under varying long-term conditions, our findings highlight significant dynamics. Shock persistence is most pronounced in the lower quantiles, reflecting non-stationarity in response to smaller shocks, while upper quantiles display faster mean reversion to larger shocks, indicating distinct market adjustments across quantiles. The nonparametric quantile autoregressive model outperforms its linear counterpart, proving more effective in capturing the asymmetric and nonlinear dynamics inherent in asset pricing. These findings hold critical implications for market efficiency and predictability, shedding light on the pivotal role of shock asymmetry in shaping international market behavior. Moreover, the study establishes a robust foundation for future research on momentum portfolio strategies, emphasizing the value of quantile-based models in refining asset management approaches under asymmetric market conditions.