The source of global stock market risk: A viewpoint of economic policy uncertainty

Tsai, I‐Chun

doi:10.1016/j.econmod.2016.09.002

Cited by 156 publications

(88 citation statements)

References 17 publications

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“…The attention on these relationships started with the groundbreaking seminal work of Bloom (2009). After introduction of the EPU index, the research approachability has been growing for exploring effects of EPU on various economic and financial indicators such as corporate governance (Zhang, Han, Pan, & Huang, 2015), investment behaviour (Wang, Chen, & Huang, 2014), economic development (Scheffel, 2016), monetary policy effects (Aastveit, Natvik, & Sola, 2017), commodity markets (Andreasson, Bekiros, Nguyen, & Uddin, 2016;Antonakakis, Chatziantoniou, & Filis, 2014;Reboredo & Uddin, 2016;Wang, Zhang, Diao, & Wu, 2015), investment (Kang et al, 2015), bond and option market (Liu & Zhang, 2015), stock price (Brogaard & Detzel, 2015;Ko & Lee, 2015,), stock market volatility (Arouri et al, 2016;Liu & Zhang, 2015), and risk (Bernal, Gnabo, & Guilmin, 2016;Brogaard & Detzel, 2015;Tsai, 2017). However, with some innovations, later, Baker et al (2016) develop a new index, which is known as GEPU (here after GEPU) index that creates new opportunities for exploring and investigating how GEPU influences stock markets, investing environment, and financing environment.…”

Section: Introductionmentioning

confidence: 99%

The impacts of global economic policy uncertainty on stock market returns in regime switching environment: Evidence from sectoral perspectives

Hoque

Zaidi

2018

Int. J Fin Econ

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This study contributes in building emerging literature by investigating the impacts of global economic policy uncertainty on Malaysian sectoral stock performance. This study models sectoral stock returns as time‐varying transition probability Markovian processes and employs two‐stage Markov‐switching model for findings impacts of global economic policy uncertainty on sectoral stock returns in regime switching environment. The empirical results reveal that linear framework unable to detect the effects global economic policy uncertainty, and the Markov‐switching model exhibits significant effects of global economic policy uncertainty on all sectoral stock returns excluding technology sector in Malaysia stock market. The findings also expose that the effects of global economic policy uncertainty vary across regime states, sectors, and nature of effects, where the negative effects of global economic policy uncertainty dominate over positive effects. The global economic policy uncertainty exhibits greater impacts on stock returns in high‐volatility regime. Thus, the findings confirm the existence of asymmetric, nonlinear, nonmonotonic, and state‐dependent relationship between global economic policy uncertainty and sectoral stock returns in Malaysia. Therefore, the overall empirical findings can be applied in asset pricing and investment decision‐making purposes. The findings also suggest that global economic policy uncertainty can be a systemic risk factor and predictor of stock market returns.

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Section: Introductionmentioning

confidence: 99%

The impacts of global economic policy uncertainty on stock market returns in regime switching environment: Evidence from sectoral perspectives

Hoque

Zaidi

2018

Int. J Fin Econ

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“…The literature suggests that uncertainty causes higher stock market volatility. Liu and Zhang (2015) show that the inclusion of EPU helps to improve forecasting ability of existing volatility models; and Tsai (2017) reports that EPU has a predictive ability not only to explain local stock volatility but also to describe cross market volatility. Testing these phenomena involves examining Cov[σ 2…”

Section: (Iii) Uncertainty Innovation Hypothesismentioning

confidence: 99%

Market Efficiency and News Dynamics: Evidence from International Equity Markets

Chiang

2019

Economies

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This paper examines the efficient market hypothesis by applying monthly data for 15 international equity markets. With the exceptions of Canada and the U.S., the null for the absence of autocorrelations of stock returns is rejected for 13 out of 15 markets. The evidence also rejects the independence of market volatility correlations. The null for testing the absence of correlations between stock returns and lagged news measured by lagged economic policy uncertainty (EPU) is rejected for all markets under investigation. The evidence indicates that a change of lagged EPUs positively predicts conditional variance.

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“…Stokey (2016) reports that volatility in interest and inflation rates are uncertainties that affect firm-level investment decisions. Tsai (2017) says that inconsistent changes in taxation policies on fixed capital often leads to a substitution of productive domestic investments in favour of consumption. Kandilov and Leblebicioğlu (2011) used the neoclassical investment model and showed how exchange rate volatility affected investment behaviour of Colombian manufacturers for the period 1981 to 1987.…”

Section: Literature Reviewmentioning

confidence: 99%

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2018

International Journal of Business, Economics and Management

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Zimbabwe"s business operating environment is abounding with both micro and macro uncertainties that regularly impact on firm-level investment decisions. Under uncertainty and irreversibility private firms are forced to integrate into their investment appraisals and decisions some expectations regarding future product demand and prices, likely returns on fixed capital investment, expected margins, cost of capital expectations and cash flow projections. These important issues are not known with definitive assurance and hence, making investment decisions under uncertainty a challenging task for Zimbabwe"s private firms. The study examined investment under uncertainty and irreversibility in Zimbabwe"s private firms using a polychotomous regression model with the three investment decision outcomes; "invest now", "do not invest now" and "defer investment". The major findings are that; (1) liquidity constraints, firm size and credit constraints significantly influence the probability of investing now irrespective of uncertainties in the economy. (2) Poor public infrastructure, political uncertainty, inconsistent application of the indigenization laws and absence of laws that protect private property rights increase the probability of private firms" deferring investment decisions under uncertainty and investment irreversibility. The paper recommends that policy makers should reduce macro uncertainties in the financial sector that affect firm-level investment decisions, adopt policies that enhance productivity of public infrastructure and must observe national and international laws that safeguard investor property rights. Contribution/Originality: The study is one of the few studies that used a polychotomous probabilistic distribution function to investigate investment decisions of Zimbabwe"s private firms given the presence of uncertainty and investment irreversibility.

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The source of global stock market risk: A viewpoint of economic policy uncertainty

Cited by 156 publications

References 17 publications

The impacts of global economic policy uncertainty on stock market returns in regime switching environment: Evidence from sectoral perspectives

The impacts of global economic policy uncertainty on stock market returns in regime switching environment: Evidence from sectoral perspectives

Market Efficiency and News Dynamics: Evidence from International Equity Markets

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