Impact of Financial Market Uncertainty on Market Returns: A Global Analysis

Abstract

This paper examines the effect of financial market uncertainty on market returns of different countries of the world. The effect of other macroeconomic like Consumer Price Index (CPI), Real Interest Rates (R.IR), Market Capitalization (MCAP), and Gross Domestic Product per capita growth (GDPPCG).For analyzing this relationship, around 40 countries data including developed and developing countries, over the period of 10 years from 2009-2018. For analysis, Panel Least Square (PLS) was used. Fixed Effect Model (FEM) is used to check the overall strength of the model. Group correlation was also performed on overall variables to check the causal relationship between all the variables and individual regression tests are also conducted country wise to explore that how much this model is applicable, descriptive analysis for market return and uncertainty to check the moments of these variables. The overall results it is concluded that market returns are affected by the financial markets uncertainty in the long run and it is a significant variable in explaining market returns while overall test results proved a positive relationship with market returns but individual testing of this model on each country shows, more than half countries in the study have a negative relationship of financial market uncertainty with market returns. Along this, other macro-economic variables impact is also measured over market returns of the world which shows all variables Consumer Price Index, Real Interest Rates and Market Capitalization except Gross Domestic Product per capita growth have a negative relationship with the Equity Market returns.