The impact of economic uncertainty, stock market uncertainty and monetary uncertainty on money demand in India

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Mohammad Azeem Khan ◽  
Masudul Hasan Adil ◽  
Shah Husain
Keyword(s):  
Stock Market ◽  
Money Demand ◽  
Inflation Targeting ◽  
Policy Framework ◽  
Economic Uncertainty ◽  
Market Uncertainty ◽  
Essential Information ◽  
Content Type ◽  
Distributed Lag ◽  
The Impact

PurposeThe purpose of the paper is to address money demand instability and investigate the impact of economic uncertainty, stock market uncertainty and monetary uncertainty on money demand in India over the period 2003Q1–2019Q4.Design/methodology/approachThe study checks the stationarity of the variables through standard unit root tests. Based on the mixed order of variables' integration, the authors adopt the autoregressive distributed lag (ARDL) model to confirm the cointegration and check the stability of the money demand function (MDF).FindingsThe findings confirm the presence of cointegration and reveal a well-specified MDF, which exhibits stable parameters. Besides the conventional variables, all forms of uncertainties emerge as the essential long-term determinants of money demand. Long-run findings show that people demand more money to avoid the future financial crunch amid high economic, monetary and stock market uncertainties.Practical implicationsThe paper recommends, based on the findings, incorporating the monetary aggregates in the monetary policy framework as one of the essential information variables to control the fluctuation in the price level under the current flexible inflation targeting (FIT) regime.Social implicationsThe findings also add to the knowledge of economic agents in terms of the overall response of individuals to changes in different forms of uncertainties, thereby helping to formulate their portfolios more diligently.Originality/valueThe current work is the first of its kind in the Indian context. The incorporation of uncertainty measures in the MDF adds to the existing knowledge on money demand.

scholarly journals Economic Uncertainty and the Demand for Broad Money in South Africa

2020 ◽  
Vol 10 (2) ◽  
pp. 123
Author(s):  
Wen-Hsien Tan ◽  
Chin-Hong Puah ◽  
Shirly Siew-Ling Wong ◽  
Mei-Teing Chong
Keyword(s):  
South Africa ◽  
Money Demand ◽  
Empirical Finding ◽  
Real Income ◽  
Policy Framework ◽  
Economic Uncertainty ◽  
Economic Agents ◽  
Distributed Lag ◽  
Long Run ◽  
The Impact

This paper scrutinised the impact of economic uncertainty on the broad money demand in South Africa using quarterly data from 2001 to 2018. Generalized Autoregressive Conditional Heteroscedasticity (GARCH) model is employed to capture the volatilities of selected components in order to construct an economic uncertainty index (EUI) for South Africa. The constructed index is then used as a regressor along with real income, interest rate and exchange rate in determining South African demand for broad money. The empirical finding using the Autoregressive Distributed Lag approach notably shows that the EUI is negatively affecting South Africa’s demand for broad money in the long term. This reveals that economic agents tend to hold real or safer assets than riskier assets, thus reduce broad money demand during times of heightened economy in South Africa. The model is cointegrated in the long-run and stable with the inclusion of EUI in the broad money demand function for South Africa. The findings are able to assist policy makers in using suitable determinants as stabilisation tools and targeting a more effective monetary policy framework refined by appropriate monetary aggregates in South Africa.

The impact of monetary policy on option-implied stock market expectations

2019 ◽  
Vol 10 (1) ◽  
pp. 37-51
Author(s):  
Xiaoyu Wang ◽  
Jia Zhai ◽  
Dejun Xie ◽  
Jingjing Jiang
Keyword(s):  
Stock Market ◽  
Multivariate Regression Analysis ◽  
Open Market ◽  
Asymmetric Effect ◽  
Market Uncertainty ◽  
Federal Open Market Committee ◽  
Content Type ◽  
Risk Neutral Density ◽  
The Impact ◽  
Target Rates

Purpose The purpose of this paper is to investigate the impact of Federal Open Market Committee (FOMC) meetings and the changes of the target rates on stock market uncertainty. Design/methodology/approach Multivariate regression analysis is applied to the historical data of VIX, FOMC meetings and target rates. Subtle relations are revealed by further categorizing the FOMC meetings into being scheduled and unscheduled and distinguishing the signs of the changes in VIX and target rates. CPI and the prime rate are used for robustness test. Findings The authors first examine the relation between FOMC meetings and target surprises; the results indicate that unscheduled FOMC meetings heavily impact the target surprises. Then, the authors investigate the relation between FOMC meetings and VIX changes; the results show that both unscheduled and scheduled FOMC meetings impact VIX, where the impacts of scheduled FOMC meetings are more substantial. The authors also analyze the responses of VIX to the target surprises, and the results reveal that there is an asymmetric effect of target surprises on VIX, where the influences of the scheduled positive target surprises are more significant. Finally, by examining the relation between the FOMC meeting and the risk-neutral density of the VIX option, the authors conclude that both KURT and SKEW are more affected by unscheduled FOMC meetings. Originality/value Deeper dimensions of the relations between VIX, FOMC meetings and target rates are analyzed and more insightful understandings of such relations are gained.

Revisiting Money Demand Stability in India: Some Post-reform Evidence (1996–2016)

2018 ◽  
Vol 66 (3-4) ◽  
pp. 326-346
Author(s):  
Masudul Hasan Adil ◽  
Salman Haider ◽  
Neeraj R. Hatekar
Keyword(s):  
Monetary Policy ◽  
Money Demand ◽  
Inflation Targeting ◽  
Structural Breaks ◽  
Policy Formulation ◽  
Policy Implications ◽  
Policy Framework ◽  
Reform Era ◽  
Distributed Lag ◽  
Long Run

In the evidence of the globalised world economy and changing economic structure, the traditional policies require a close examination. This is particularly true in the case of emerging economies like India, which have experienced a rapidly changing policy environment since 1991. The demand for money is an important ingredient for monetary policy formulation. Therefore, the present study re-examines the stability and specification issues of money demand in India’s post-reform era. The study takes care of structural breaks in the macroeconomic series while using a unique quarterly dataset from 1996: Q2 to 2016: Q3. Despite the structural breaks, the application of Gregory and Hansen (1996) and autoregressive distributed lag models demonstrate the existence of a stable short-and long-run relationships between real money balances and their determinants. These empirical findings are having a lot of policy implications in the current monetary policy framework of India—inflation targeting framework.

scholarly journals Economic Uncertainty and Money Demand Stability in Uganda during Financial Liberalization: A GARCH and ARDL Approach

2018 ◽  
Vol 5 (4) ◽  
Author(s):  
Allan Kayongo ◽  
Asumani Guloba
Keyword(s):  
Money Demand ◽  
Financial Liberalization ◽  
Economic Uncertainty ◽  
Monetary Aggregates ◽  
Economic Agents ◽  
Distributed Lag ◽  
Negative Effect ◽  
Short Run ◽  
Demand Stability ◽  
The Impact

This paper examines the impact of economic uncertainty on money demand stability in Uganda during financial liberalization. First, an economic uncertainty index is created using the Generalized autoregressive conditional heteroscedasticity  method to measure uncertainty. Secondly, the Autoregressive Distributed Lag  methodology is used to estimate three risk-augmented monetary aggregates: base money, broad money  and broad money . The results show that economic uncertainty has no effect on real base money and real broad money  in the short run; but has a negative effect on real broad money . However, economic uncertainty negatively affects all monetary aggregates after one quarter. This is because economic agents diversify their portfolio from just holding money, into other forms like: long term accounts; foreign accounts; treasury bills and bonds; property; mortgages and land. The three money demand balances are also stable.

Political instability and corporate social responsibility: the case of Egypt

2019 ◽  
Vol 16 (5) ◽  
pp. 745-767 ◽  
Author(s):  
Dina El-Bassiouny ◽  
Peter Letmathe
Keyword(s):  
Corporate Social Responsibility ◽  
Stock Market ◽  
Social Responsibility ◽  
Financial Performance ◽  
Political Instability ◽  
Equation Modeling ◽  
Market Uncertainty ◽  
Content Type ◽  
Corporate Social ◽  
The Impact

Purpose This paper aims to examine the impact of political uncertainty and instability caused by the 2011 Egyptian revolution on the corporate social responsibility (CSR) practices of Egyptian firms. The study provides empirical evidence to support the link between political instability, financial performance, stock market uncertainty and CSR in the post-revolution context of Egypt. Design/methodology/approach Data on CSR practices in Egypt were collected through a survey of Egyptian firms and content analysis of annual reports from publicly traded firms. The final survey sample consisted of 99 listed Egyptian companies. Structural equation modeling was performed to examine the relationship between the variables of this study. Findings The results of the study show that political instability is perceived to have a significant positive effect on the CSR practices of Egyptian firms. The results also reveal that the financial performance of firms is perceived not to be affected by the political instability after the 2011 Revolution as opposed to stock market uncertainty, which is perceived to be significantly affected. However, financial performance and stock market uncertainty have a significant positive influence on the CSR practices of Egyptian firms. Originality/value This paper capitalizes institutional theory to capture the complex interactions between organizations and their external institutional environments. Previous studies tackling CSR in unstable political environments in the African context focused on countries with prolonged periods of violent conflict and on more localized forms of conflicts. Yet, little is known about CSR during the occurrence of different types of political instabilities in other African countries.

Assessing the impact of Covid-19 pandemic in Turkey with a novel economic uncertainty index

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Erhan Mugaloglu ◽  
Ali Yavuz Polat ◽  
Hasan Tekin ◽  
Edanur Kılıç
Keyword(s):  
Industrial Production ◽  
Explanatory Power ◽  
Principal Component ◽  
Intermediate Goods ◽  
Economic Uncertainty ◽  
Content Type ◽  
Uncertainty Shocks ◽  
Political Events ◽  
Uncertainty Index ◽  
The Impact

PurposeThis study aims to measure economic uncertainty in Turkey by a novel economic uncertainty index (EUI) employing principal component analysis (PCA). We assess the impact of Covid-19 pandemic in Turkey with our constructed uncertainty index.Design/methodology/approachIn order to obtain the EUI, this study employs a dimension reduction method of PCA using 14 macroeconomic indicators that spans from January 2011 to July 2020. The first principal component is picked as a proxy for the economic uncertainty in Turkey which explains 52% of total variation in entire sample. In the second part of our analysis, with our constructed EUI we conduct a structural vector autoregressions (SVAR) analysis simulating the Covid-19-induced uncertainty shock to the real economy.FindingsOur EUI sensitively detects important economic/political events in Turkey as well as Covid-19-induced uncertainty rising to extremely high levels during the outbreak. Our SVAR results imply a significant decline in economic activity and in the sub-indices as well. Namely, industrial production drops immediately by 8.2% and cumulative loss over 8 months will be 15% on average. The losses in the capital and intermediate goods are estimated to be 18 and 25% respectively. Forecast error variance decomposition results imply that uncertainty shocks preserve its explanatory power in the long run, and intermediate goods production is more vulnerable to uncertainty shocks than overall industrial production and capital goods production.Practical implicationsThe results indicate that monetary and fiscal policy should aim to decrease uncertainty during Covid-19. Moreover, since investment expenditures are affected severely during the outbreak, policymakers should impose investment subsidies.Originality/valueThis is the first study constructing a novel EUI which sensitively captures the critical economic/political events in Turkey. Moreover, we assess the impact of Covid-19-driven uncertainty on Turkish Economy with a SVAR model.

A quantile regression approach to evaluate the relative impact of global and local factors on the MENA stock markets

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Slah Bahloul ◽  
Nawel Ben Amor
Keyword(s):  
Stock Market ◽  
Quantile Regression ◽  
Stock Returns ◽  
Stock Markets ◽  
Financial Integration ◽  
Ordinary Least Squares ◽  
Market Returns ◽  
Stock Market Returns ◽  
Content Type ◽  
The Impact

PurposeThis paper investigates the relative importance of local macroeconomic and global factors in the explanation of twelve MENA (Middle East and North Africa) stock market returns across the different quantiles in order to determine their degree of international financial integration.Design/methodology/approachThe authors use both ordinary least squares and quantile regressions from January 2007 to January 2018. Quantile regression permits to know how the effects of explanatory variables vary across the different states of the market.FindingsThe results of this paper indicate that the impact of local macroeconomic and global factors differs across the quantiles and markets. Generally, there are wide ranges in degree of international integration and most of MENA stock markets appear to be weakly integrated. This reveals that the portfolio diversification within the stock markets in this region is still beneficial.Originality/valueThis paper is original for two reasons. First, it emphasizes, over a fairly long period, the impact of a large number of macroeconomic and global variables on the MENA stock market returns. Second, it examines if the relative effects of these factors on MENA stock returns vary or not across the market states and MENA countries.

scholarly journals Loss aversion, overconfidence of investors and their impact on market performance evidence from the US stock markets

2020 ◽  
Vol 25 (50) ◽  
pp. 451-478
Author(s):  
Ahmed Bouteska ◽  
Boutheina Regaieg
Keyword(s):  
Stock Market ◽  
Economic Performance ◽  
Loss Aversion ◽  
Market Performance ◽  
Ordinary Least Squares ◽  
Company Performance ◽  
Service Firms ◽  
Content Type ◽  
The Us ◽  
The Impact

Purpose The current study aims to investigate the impacts of two behavioral biases, namely, loss aversion and overconfidence on the performance of US companies. First, the impact of loss aversion on the economic performance of companies was assessed. Second, the impact of overconfidence on market performance was discussed. Design/methodology/approach This study used around 6,777 quarterly observations on the population of US-insured industrial and services companies over the 2006-2016 period. Ordinary least squares (OLS) regression in two panel data models were used to test the hypotheses formulated for the study. Findings It was documented that the loss-aversion bias negatively affects the economic performance of companies and this is achieved for both sectors. In contrast, the findings suggest that overconfidence positively affects market performance of industrial firms but negatively affects market performance in service firms. Further robust evidence was found that overconfidence bias seems to be dominant, and hence, investors may tend to be more overconfident rather than more loss-averse. Originality/value This research can be extended by focusing on the following question: What is the impact of the contradictory (positive and negative) effects of an investor's loss aversion and overconfidence on the US company performance in case of realization of a stock market crisis or stock market crash?

Islamic calendar and stock market behaviour in India

2018 ◽  
Vol 45 (11) ◽  
pp. 1550-1566
Author(s):  
Dharani Munusamy
Keyword(s):  
Stock Market ◽  
Least Square Method ◽  
Least Square ◽  
Stock Market Returns ◽  
Content Type ◽  
Ordinary Least Square ◽  
Average Return ◽  
Year Effect ◽  
The Common ◽  
The Impact

Purpose The purpose of this paper is to examine the behavior of the stock market returns in the different days of the week and different months of the year in accordance with the Islamic calendar. Further, the study estimates the risk-adjusted returns to test the performance of the indices during the Ramadan and non-Ramadan days. Finally, the study investigates the impact of Ramadan on the returns and the volatility of the stock market indices in India. Design/methodology/approach Initially, the study applies the Ordinary Least Square method to test the day-of-the-week and the month-of-the-year effect of the common and Shariah indices. Next, the study employs the risk-adjusted measurement to examine the underperformance and over-performance of the indices for both the periods. Finally, the study estimates the GARCH (1,1) and GJR-GARCH (1,1) models to observe the impact of Ramadan on the returns and the volatility of the Shariah indices in India. Findings The study finds that an average return of the indices during the Ramadan days are higher than non-Ramadan days. Further, the average returns of the Shariah indices are significantly higher on Wednesday than other days of the week. In addition, the highest and significant mean returns and mean risk-adjusted returns of the indices during the Ramadan days are observed. Finally, the study finds an evidence of the Ramadan effect on the returns and volatility of the indices in India. Originality/value The study observes evidence that the Ramadan effect influences the Shariah indices, but not the common indices in the stock market of the non-Muslim countries. It indicates that the Ramadan creates the positive mood and emotions in the investors buying and selling activities. The study suggests that investors can buy the shares before Ramadan period and sell them during the Ramadan days to get an abnormal return in the emerging markets.

The Impact of Policy Uncertainty on Macro Variables – An SVAR-Based Empirical Analysis for EU Countries

2017 ◽  
Vol 68 (2) ◽  
Author(s):  
Dominik Kronen ◽  
Ansgar Belke
Keyword(s):  
Stock Market ◽  
Policy Uncertainty ◽  
Stock Market Volatility ◽  
Market Uncertainty ◽  
Vector Autoregressive ◽  
Svar Model ◽  
Negative Effect ◽  
Macro Variables ◽  
The Impact ◽  
Structural Vector

AbstractIn light of the rising political and economic uncertainty in Europe, we aim to provide a basic understanding of the impact of policy and stock market uncertainty on a set of macroeconomic variables such as production and investment. In this paper, we apply a structural vector autoregressive (SVAR) model to gain first insights that may help to identify avenues for further research. We find that stock market volatility shows a fairly consistently negative effect. However, the implications of policy uncertainty for Europe and the euro area in particular are not so straightforward.

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