Mixed frequency domain spillover effect of international economic policy uncertainty on stock market

Kybernetes ◽  
2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Shuzhen Zhu ◽  
Xiaofei Wu ◽  
Zhen He ◽  
Yining He
Keyword(s):  
International Economic ◽  
Economic Policy ◽  
Stock Market ◽  
Frequency Domain ◽  
Time Domain ◽  
Spillover Effect ◽  
Spillover Effects ◽  
Policy Uncertainty ◽  
Content Type ◽  
Economic Policy Uncertainty

Purpose The purpose of this paper is to construct a frequency-domain framework to study the asymmetric spillover effects of international economic policy uncertainty on China’s stock market industry indexes. Design/methodology/approach This paper follows the time domain spillover model, asymmetric spillover model and frequency domain spillover model, which not only studies the degree of spillover in time domain but also studies the persistence of spillover effect in frequency domain. Findings It is found that China’s economic policy uncertainty plays a dominant role in the spillover effect on the stock market, while the global and US economic policy uncertainty is relatively weak. By decomposing realized volatility into quantified asymmetric risks of “good” volatility and “bad” volatility, it is concluded that economic policy uncertainty has a greater impact on stock downside risk than upside risk. For different time periods, the sensitivity of long-term and short-term spillover economic policy impact is different. Among them, asymmetric high-frequency spillover in the stock market is more easily observed, which provides certain reference significance for the stability of the financial market. Originality/value The originality aims at extending the traditional research paradigm of “time domain” to the research perspective of “frequency domain.” This study uses the more advanced models to analyze various factors from the static and dynamic levels, with a view to obtain reliable and robust research conclusions.

scholarly journals Research on the Time-Frequency Spillover Effect of High-Frequency Stock Price and Economic Policy Uncertainty

2021 ◽  
Vol 2021 ◽  
pp. 1-18
Author(s):  
Shuzhen Zhu ◽  
Zhen He ◽  
Suxue Wang
Keyword(s):  
Economic Policy ◽  
Hong Kong ◽  
Stock Market ◽  
Frequency Domain ◽  
High Frequency ◽  
Spillover Effects ◽  
Policy Uncertainty ◽  
Economic Policy Uncertainty ◽  
Time Frequency ◽  
Hong Kong Stock Market

Through the construction of wavelet coherence analysis and frequency-domain spillover framework, this paper makes a comparative study of the volatility spillover effects of international economic policy uncertainty (EPU) on China’s Shanghai and Hong Kong stock market from a time-frequency perspective. To fully reflect the international EPU, this paper selects China, the United States, Australia, and the United Kingdom and uses the monthly EPU index of these countries and regions. China chooses China’s EPU index and Hong Kong’s EPU index. At the same time, the 5-minute high-frequency volatility of the Shanghai Composite Index (SSEC) and the Hang Seng Index (HSI) is selected to represent the Shanghai and Hong Kong’s stock market, respectively. It is found that there are obvious differences between the EPU and the dependence of the stock market in time domain and frequency domain, and the lead-lag relationship between them has time-varying characteristics. Static and dynamic spillover effects play a dominant role in the analysis of medium- and long-term spillover effects. In particular, the EPU and the risk spillover of the Hong Kong stock market are stronger than those of the Shanghai stock market, and the dynamic frequency-domain net risk spillover between them has frequency characteristics, and there are two-way and asymmetric risk spillovers. This provides a certain reference for policy makers to improve the safety management of financial markets and for market investors to optimize their portfolios.

Economic policy uncertainty and stock prices in BRIC countries: evidence from asymmetric frequency domain causality approach

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Mucahit Aydin ◽  
Ugur Korkut Pata ◽  
Veysel Inal
Keyword(s):  
Economic Policy ◽  
Frequency Domain ◽  
Stock Prices ◽  
Policy Uncertainty ◽  
Causality Test ◽  
Content Type ◽  
Economic Policy Uncertainty ◽  
Bric Countries ◽  
Causality Tests ◽  
Asymmetric Causality

Purpose The aim of this study is to investigate the relationship between economic policy uncertainty (EPU) and stock prices during the period from March 2003 to March 2021. Design/methodology/approach The study uses asymmetric and symmetric frequency domain causality tests and focuses on BRIC countries, namely, Brazil, Russia, India and China. Findings The findings of the symmetric causality test confirm unidirectional permanent causality from EPU to stock prices for Brazil and India and bidirectional causality for China. However, according to the asymmetric causality test, the findings for China show that there is no causality between the variables. The results for Brazil and India indicate that there is unidirectional permanent causality from positive components of EPU to positive components of stock prices. Moreover, for Brazil, there is unidirectional temporary causality from the negative components of EPU to the negative components of stock prices. For India, there is temporary causality in the opposite direction. Originality/value The reactions of financial markets to positive and negative shocks differ. In this context, to the best of the authors’ knowledge, this study is the first attempt to examine the causal relationships between stock prices and uncertainty using an asymmetric frequency domain approach. Thus, the study enables the analysis of the effects of positive and negative shocks in the stock market separately.

Economic policy uncertainty and stock market liquidity

2018 ◽  
Vol 10 (1) ◽  
pp. 112-135 ◽  
Author(s):  
Byomakesh Debata ◽  
Jitendra Mahakud
Keyword(s):  
Economic Policy ◽  
Stock Market ◽  
Financial Crises ◽  
Emerging Market ◽  
Decomposition Analysis ◽  
Market Liquidity ◽  
Policy Uncertainty ◽  
Content Type ◽  
Economic Policy Uncertainty ◽  
Stock Market Liquidity

Purpose This study aims to examine the relationship between economic policy uncertainty and stock market liquidity in an order-driven emerging stock market. Design/methodology/approach Empirical estimates are based on vector autoregressive Granger-causality tests, impulse response functions and variance decomposition analysis. Findings The empirical findings suggest that economic policy uncertainty moderately influences stock market liquidity during normal market conditions. However, the role of economic policy uncertainty for determining stock market liquidity is significant in times of financial crises. The authors have also observed a significant portion of variation in stock market liquidity that is attributed to investor sentiments during financial crises. Originality/value This study is original in nature and provides evidence to consider economic policy uncertainty as a possible source of commonality in liquidity in the context of an emerging market.

scholarly journals Economic Policy Uncertainty and Stock Market Spillovers: Case of Selected CEE Markets

Mathematics ◽  
2020 ◽  
Vol 8 (7) ◽  
pp. 1077 ◽  
Author(s):  
Tihana Škrinjarić ◽  
Zrinka Orlović
Keyword(s):  
Economic Policy ◽  
Stock Market ◽  
Spillover Effects ◽  
Policy Uncertainty ◽  
Market Returns ◽  
Stock Market Returns ◽  
Economic Policy Uncertainty ◽  
Dynamic Estimation ◽  
International Investors ◽  
First Time

Rising political and economic uncertainty over the world affects all participants on different markets, including stock markets. Recent research has shown that these effects are significant and should not be ignored. This paper estimates the spillover effects of shocks in the economic policy uncertainty (EPU) index and stock market returns and risks for selected Central and Eastern European markets (Bulgaria, Czech Republic, Estonia, Hungary, Lithuania, Poland, Croatia, Slovakia and Slovenia). Based on rolling estimations of the vector autoregression (VAR) model and the Spillover Indices, detailed insights are obtained on the sources of shock spillovers between the variables in the system. Recommendations are given based on the results both for policymakers and international investors. The contribution of the paper consists of the dynamic estimation approach, alongside allowing for the feedback relationship between the variables of interest, as well as examining the mentioned spillovers for the first time for majority of the observed countries.

US economic policy uncertainty spillover on the stock markets of the GCC countries

2020 ◽  
Vol 47 (1) ◽  
pp. 36-50 ◽  
Author(s):  
Khandokar Istiak ◽  
Md Rafayet Alam
Keyword(s):  
Economic Policy ◽  
Stock Market ◽  
Stock Markets ◽  
Risk Sharing ◽  
Financial System ◽  
Policy Uncertainty ◽  
Content Type ◽  
Economic Policy Uncertainty ◽  
Gcc Countries ◽  
The Us

PurposeThis study aims to investigate the nature and degree of US economic policy uncertainty spillover on the stock markets of a group of non-conventional economies like the Gulf Cooperation Council (GCC) countries, where a risk-sharing-based financial system is prominent and foreign investment, risk-free interest, derivatives, etc. are not as widespread as in the western economies.Design/methodology/approachthe monthly data of 1992–2018, linear and nonlinear structural vector autoregression (VAR) model, and an impulse response-based test to explore the nature and degree of US economic policy uncertainty spillover on the stock markets of the GCC countries.FindingsThis study finds that an unexpected increase in the US economic policy uncertainty significantly decreases the stock market index of all the GCC countries. This study also gets this relationship symmetric, meaning that the GCC stock market indices decrease and increase by the same amount when the US economic policy uncertainty increases and decreases, respectively.Originality/valueThis study investigates the characteristics of economic policy uncertainty spillover from the biggest economy of the world to the stock markets of the GCC region, which is new to the literature. The study results provide the first evidence that a risk-sharing based financial system does not necessarily protect the stock market from US uncertainty shock. However, the abundance of local investors, risk-sharing investment activities, the absence of derivatives, etc. may be responsible for the symmetric behavior of a stock market.

scholarly journals Asymmetric Risk Spillover Networks and Risk Contagion Driver in Chinese Financial Markets: The Perspective of Economic Policy Uncertainty

Complexity ◽  
2021 ◽  
Vol 2021 ◽  
pp. 1-10
Author(s):  
Zongxin Zhang ◽  
Ying Chen ◽  
Weijie Hou
Keyword(s):  
Economic Policy ◽  
Real Estate ◽  
Financial Markets ◽  
Financial Risk ◽  
Positive Impact ◽  
Spillover Effect ◽  
Spillover Effects ◽  
Policy Uncertainty ◽  
Economic Policy Uncertainty ◽  
The Impact

The global financial market shocks have intensified due to the COVID-19 epidemic and other impacts, and the impacts of economic policy uncertainty on the financial system cannot be ignored. In this paper, we construct asymmetric risk spillover networks of Chinese financial markets based on five sectors: bank, securities, insurance, diversified finance, and real estate. We investigate the complexity of the risk spillover effect of Chinese financial markets and the impact of economic policy uncertainty on the level of network contagion of financial risk. The study yields three findings. First, the cross-sectoral risk spillover effects of Chinese financial markets are asymmetric in intensity. The bank sector is systemically important in the risk spillover network. Second, the level of risk stress in the real estate sector has increased in recent years, and it plays an important role in the path of financial risk contagion. Third, Economic policy uncertainty has a significant positive impact on the level of network contagion of financial risk of Chinese financial markets.

scholarly journals Susceptibility of Stock Market Returns to International Economic Policy: Evidence from Effective Transfer Entropy of Africa with the Implication for Open Innovation

2020 ◽  
Vol 6 (3) ◽  
pp. 71 ◽  
Author(s):  
Anokye M. Adam
Keyword(s):  
South Africa ◽  
International Economic ◽  
Economic Policy ◽  
Stock Market ◽  
Stock Markets ◽  
Open Innovation ◽  
Transfer Entropy ◽  
Policy Uncertainty ◽  
Economic Policy Uncertainty ◽  
Effective Transfer

This study contributes to the scant finance literature on information flow from international economic policy uncertainty to emerging stock markets in Africa, using daily US economic policy uncertainty as a proxy and the daily stock market index for Botswana, Egypt, Ghana, Kenya, Morocco, Nigeria, Namibia, South Africa, and Zambia from 31 December 2010 to 27 May 2020, using the Rényi effective transfer entropy. International economic policy uncertainty transmits significant information to Egypt, Ghana, Morocco, Namibia, and South Africa, and insignificant information to Botswana, Kenya, Nigeria, and Zambia. The asymmetry in the information transfer tends to make the African market an alternative for the diversification of international portfolios when the uncertainty of the global economic policy is on the rise. The findings also have implications for the adoption of open innovation in African stock markets.

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