Oil price shocks, global economic policy uncertainty, geopolitical risk, and stock price in Malaysia: Factor augmented VAR approach

Abstract

This article examines the impacts of the geopolitical risk, global economic policy uncertainty, and oil price shocks on stock prices in Malaysia using factor augmented SVAR approach. The findings show that while geopolitical risk has no significant direct impacts on the overall stock market, its indirect impacts are significant and transmitted through the global economic policy uncertainty and oil shocks channels. Global economic policy uncertainty exerts negative effects on the overall stock market and its impacts are magnified by geopolitical risk. Oil related shocks exhibit asymmetric effects on both the aggregated and sectoral stock price. The impacts of oil demand shock on stock price are amplified by global economic uncertainty factor whereas oil supply shocks impacts are amplified by the geopolitical risk factor. At sectoral level, the impacts of all the global shocks vary across different sectors and time. The overall findings imply that global economic policy uncertainty and oil demand shock factors are systematic risk factors that can be employed to forecast stock market returns. The findings also provide implications for policymakers to regulate markets in maintaining financial stability and investors to react to future shocks in these global economic factors with regard to the risks and opportunities.

The impact of the COVID-19 crisis on the perception of business risk in the SME segment

“…He claims that three attributes remain very important during a crisis: the economy, economics, and economic policy. Exogenous economic shocks, oil price shocks, economic policy uncertainty, geopolitical risk exercise a strong impact on stock market that we can compare with the pandemic impact for benchmarking pandemic impact (Enamul Hoque et al, 2019).…”

Causal estimation of COVID-19 and SARS on China's stock market: evidence from a time series counterfactual prediction

“…Jeris and Nath (2020) tested the relationship between COVID-19, oil prices, and U.K. economic policy uncertainty, using an ARDL approach. Many other studies also use various time series methods to investigate the correlation between different time series variables (Hoque et al, 2019;Lee & Wang, 2015;Shaeri & Katircio glu, 2018;Tang, 2013). However, the above methods cannot directly estimate the causal effect, because a causal estimation generally needs a welldesigned counterfactual framework (Frangakis & Rubin, 2002).…”

How Does Uncertainty in Economic Policy React to Oil Price Shocks in Australia?

“…The data was collected from relevant Australian sources and databases, and the researcher applied different techniques and tests on the data-the most important and fundamental of which was the VAR model. The results suggest that OSS and OS due to GD both have a significant and positive impact on EPU in Australia (Aloui, Gupta, & Miller, 2016;Hoque et al, 2019). This could be due to the fact that, even though there are certain fluctuations in oil prices, the market has the potential to adjust.…”

“…This shows that a 21% variation occurred as a result of the shock to the US' oil supply and the appropriate CPI (Kang, Ratti, & Vespignani, 2017). In the Money and Finance journal, scholars have critically studied the demand of oil in order to understand its productive impact on the rate of return of operating activities (Hoque, Soo, & Zaidi, 2019;You, Guo, Zhu, & Tang, 2017). According to this study, the return rate of a company is adversely affected due to the uncertainty factor of outside policies.…”

“…In addition, further important research conducted by Mohammad Enamul Hoque and his research partners examined the influence of global EPU, geopolitical risk, and the OPS on the fluctuation of stock prices in Malaysia using an augmented SVAR approach. According to their outcomes, geopolitical risk significantly influences the stock market and indirectly impacts OS channels and GPU (Hoque et al, 2019).…”