The impact of politics and economic policy uncertainty on anomaly-based investment strategies

2019 ◽  
Vol 45 (5) ◽  
pp. 654-670
Author(s):  
Cedric Mbanga ◽  
Jeffrey Scott Jones ◽  
Seth A. Hoelscher
Keyword(s):  
Economic Policy ◽  
Hedge Funds ◽  
Investment Strategy ◽  
Portfolio Performance ◽  
Policy Uncertainty ◽  
Investment Strategies ◽  
Party Affiliation ◽  
Content Type ◽  
Economic Policy Uncertainty ◽  
The Impact

Purpose The purpose of this paper is to explore the overlooked relationship between politics and the performance of anomaly-based investment strategies. Design/methodology/approach Monthly long-short portfolios are formed based on relative mispricing scores according to the Stambaugh et al. (2012, 2015) relative mispricing measure. Portfolio performance is examined throughout various presidential terms. The design also introduces economic policy uncertainty (EPU) as a possible explanatory variable for portfolio performance. Findings The analysis reveals that anomaly-based returns are higher under Republican administrations than they are under Democratic administrations. Moreover, the results show that the impact of EPU on the relationship between the political party affiliation of the president and future anomaly-based returns are driven by the election and post-election years. Practical implications The examination of returns on a long-short portfolio may be of particular value to investment companies, such as hedge funds, who regularly employ this type of strategy. Originality/value While the impact of presidential terms on raw equity returns has been well examined, the paper is the first to examine the impact of presidential terms on the return of an anomaly-based investment strategy. EPU is also introduced as an important contributing factor.

Economic policy uncertainty and fine wine prices

2020 ◽  
Vol 32 (3) ◽  
pp. 457-476
Author(s):  
Nithya Shankar ◽  
Bill Francis
Keyword(s):  
Economic Policy ◽  
Information Criterion ◽  
Government Policies ◽  
Time Lags ◽  
Policy Uncertainty ◽  
Content Type ◽  
Economic Policy Uncertainty ◽  
The Uk ◽  
The Impact ◽  
Wine Markets

Purpose The paper aims to investigate the impact of economic policy uncertainty (EPU) (i.e. uncertainty due to government policies) on fine wine prices. Design/methodology/approach The paper uses the Baker et al. (2016) monthly news-based measure of EPU for the leading wine markets: the USA, the UK, France, Germany and China in conjunction with monthly fine wine pricing data from the London International Vintners Exchange (Liv-ex). The wine sub-indices used are the Liv-ex 500 (Bordeaux), Burgundy 150, Champagne 50, Rhone 100, Italy 100, California 50, Port 50 and Rest of the World 50. The Prais–Winsten and Cochrane–Orcutt regressions are used for our analyses to correct for effects of serial correlation. Time lags are chosen based on the appropriate information criterion. Findings Changes in EPU levels negatively impact changes in the Liv-ex 500 index for all our leading wine markets except France, the Champagne 50 index for the UK and the Burgundy 150 and the Rhone 100 indices for Germany, with the effects being significant for at least up to a quarter before EPU is detected. The authors did not find significant results for the EPU of France. Practical implications The paper aims to provide insights into whether EPU creates opportunities or threats for investors and wineries. Originality/value A forward-looking news-based EPU measure is used to gain insights into how the different Liv-ex sub-indices react to increases in uncertainty centered around government policies across a sample of different countries.

scholarly journals Sensitivity of economic policy uncertainty to investor sentiment

2019 ◽  
Vol 36 (2) ◽  
pp. 114-129 ◽  
Author(s):  
Mobeen Ur Rehman ◽  
Nicholas Apergis
Keyword(s):  
Economic Policy ◽  
Investor Sentiment ◽  
Policy Uncertainty ◽  
Momentum Effect ◽  
Control Variables ◽  
Content Type ◽  
Economic Policy Uncertainty ◽  
Investor Sentiments ◽  
International Investors ◽  
The Impact

Purpose This paper aims to explore the impact of investor sentiments on economic policy uncertainty (EPU). The analysis also considers the momentum effect, stock market returns volatility and equity pricing inefficiencies across markets, which, to the best of the authors’ knowledge, has not been addressed in the literature. The role of these control variables has collectively been considered to have important behavioral implications for international investors Design/methodology/approach Quantile regressions are used for estimation purpose, as it provides robust and more efficient estimates rather than those coming from the traditional regression model. Findings The momentum effect is negative and significant only at higher quantiles, while oil prices are positive and significant across all quantiles. The exchange rate exerts a negative and significant effect on EPU, whereas equity price volatility (i.e. investor sentiment) exerts a negative and significant impact on EPU in most of the quantiles. Research limitations/implications The results have important implications for international investors and policymakers, especially in terms of the breakdown of economic policy uncertainty across different sample markets. The breakdown of complete sample period into sub-samples acts as a robust analysis and documents the similarity of the results for the Asian and developed markets cases, but not in the case of the European markets. Practical implications The findings imply the importance of financial stability that impacts the accumulation of systemic risks and adds smoothness to the financial cycle in particular geographical areas. Originality/value The contribution of this paper is threefold. First, existing literature highlights and empirically tests the impact of economic policy uncertainty on different market, macro-economic and global control variables. The analysis, however, performs it in the reverse order, i.e. analyzing the impact of the momentum effect (investor sentiment variables), equity market inefficiencies and volatility (market variables) and exchange rates and Brent oil (control variables). Second, to check the sensitivity of economic policy uncertainty, the analysis analyzes a wide range of markets, segregated as emerging, developed and European regions over the sample period to generate region-wise implications. Finally, the analysis explores the relationship of aforementioned variables with economic policy uncertainty keeping in view the non-linear structure and prior evidence and investor sentiments and economic policy uncertainty in the regression model.

How and when economic policy uncertainty influences firms' strategic change: the role of CEO turnover and organizational inertia

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Xi Zhong ◽  
Weihong Chen ◽  
Ge Ren
Keyword(s):  
Economic Policy ◽  
Strategic Change ◽  
Negative Impact ◽  
Ceo Turnover ◽  
Mediating Effect ◽  
Policy Uncertainty ◽  
Content Type ◽  
Economic Policy Uncertainty ◽  
Organizational Inertia ◽  
The Impact

PurposeMany studies have examined the antecedents of firms' strategic change on a micro and meso level, but few studies have explored it from the macrolevel (e.g. economic policy uncertainty) perspective. This research draws attention to the impact of economic policy uncertainty on firms' strategic change.Design/methodology/approachThis research empirically tests hypotheses based on a sample of listed firms in China during the period between 2010 and 2017.FindingsBased on real options theory, the authors theorize and find that economic policy uncertainty will negatively affect firms' strategic change through the mediating effect of CEO turnover. Moreover, organizational inertia will strengthen the negative impact of economic policy uncertainty on CEO turnover and will weaken the positive impact of CEO turnover on firms' strategic change.Originality/valueFirst, this research contributes to the strategic change literature by demonstrating the important impact of economic policy uncertainty on firms' strategic change. Second, this research expands the literature on the economic consequences of economic policy uncertainty. Third, this research clarifies the path and boundary conditions of economic policy uncertainty affecting strategic change by introducing the mediating effects of CEO turnover and the moderating effects of organizational inertia.

Economic policy uncertainty and firms' labor investment decision

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Jian Chu ◽  
Junxiong Fang
Keyword(s):  
Economic Policy ◽  
Human Capital ◽  
Optimal Allocation ◽  
Investment Decision ◽  
Capital Allocation ◽  
Investment Efficiency ◽  
Policy Uncertainty ◽  
Content Type ◽  
Economic Policy Uncertainty ◽  
The Impact

PurposeThe purpose of this paper is to empirically investigate the impact of economic policy uncertainty on firms' labor investment decision, which includes labor investment level and efficiency, especially human capital allocation.Design/methodology/approachThis paper uses Economic Policy Uncertainty Index for China and Chinese A-share listed firms in the period 2002–2016 to constructs a sample of 20,779 firm-year observations and applies the methods of pooled OLS regressions to do an empirical study.FindingsThis paper finds that firms' labor investment is negatively correlated with economic policy uncertainty. And firms' labor investment efficiency (and overinvestment in labor) is positively (negatively) correlated with economic policy uncertainty, which is more significant for non-SOEs and firms with less government intervention. Further, the positive relation between economic policy uncertainty and labor investment efficiency is more significant for labor-intensive firms, firms in competitive industry, firms in developed labor market and firms under strong labor law protection. In addition, economic policy uncertainty induces firms to make adjustment on human capital structure and allocate more employees with high human capital, which eventually helps firms achieve higher total factor productivity.Social implicationsThe study of this paper indicates that the government needs to consider economic policies' impact on firms when introducing and changing policies and guide firms to improve human capital allocation under different internal and external conditions to finally realize the optimal allocation of social resources.Originality/valueThis paper studies the influence of external economic policy environment on firms' labor investment decision, which lacks adequate attention in the literature and indicates that under economic policy uncertainty, firms actively decrease labor demand and increase labor investment efficiency by optimizing human capital allocation.

Economic policy uncertainty and grain futures price volatility: evidence from China

2019 ◽  
Vol 11 (4) ◽  
pp. 642-654 ◽  
Author(s):  
Xiaoyong Xiao ◽  
Qingsong Tian ◽  
Shuxia Hou ◽  
Chongguang Li
Keyword(s):  
Economic Policy ◽  
Global Financial Crisis ◽  
Price Volatility ◽  
Chinese Government ◽  
Policy Uncertainty ◽  
Futures Prices ◽  
Content Type ◽  
Economic Policy Uncertainty ◽  
Futures Price ◽  
The Impact

Purpose The purpose of this paper is to investigate the influence of economic policy uncertainty (EPU) on China’s grain futures prices. Related literature has discussed several factors contributing to the dramatic boom and bust in China’s grain futures prices, but has overlooked the influence of EPU. Design/methodology/approach The study employs a newly developed time-varying parameter vector autoregressive model to study and contrast the impact of different types of uncertainty on China’s grain futures prices. The directional volatility spillover index is used to measure the impact of EPU on China’s grain futures prices and compare the differences among commodities. Findings The results show that EPU affects China’s grain futures prices significantly. The 2008 global financial crisis had stronger influence on China’s grain futures prices than other types of uncertainty. Furthermore, EPU has smaller influence on wheat futures price than on maize and soybean. The Chinese Government interventions may be the reason for this difference. Originality/value This study addresses the lack of empirical investigation on the influence of EPU on China’s grain futures price volatility.

Economic policy uncertainty, market returns and expected return predictability

2017 ◽  
Vol 9 (3) ◽  
pp. 242-259 ◽  
Author(s):  
Frederick A. Adjei ◽  
Mavis Adjei
Keyword(s):  
Economic Policy ◽  
Predictive Power ◽  
Negative Impact ◽  
Future Market ◽  
Policy Uncertainty ◽  
Market Returns ◽  
Expected Return ◽  
Content Type ◽  
Economic Policy Uncertainty ◽  
The Impact

Purpose Using the economic policy uncertainty (EPU) index as a proxy for the level of EPU, we study the impact of the level of EPU on the conditional mean of market returns and we examine the predictive power of EPU on future market returns. Design/methodology/approach We employ a GARCH-in-Mean model with exogenous variables. Findings The results show that even after controlling for business cycle effects, EPU is inversely related to contemporaneous market returns. Particularly, the authors find that the negative impact of EPU subsists only during recessions or recessionary states of the economy, and has no discernible effects during expansionary periods. Originality/value This is the first study to examine the predictive power of EPU on future market returns.

Economic policy uncertainty and stock liquidity: evidence from China

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Liguang Zhang ◽  
Wanyi Chen ◽  
Ning Hu
Keyword(s):  
Economic Policy ◽  
Investor Sentiment ◽  
Least Square ◽  
Transmission Mechanism ◽  
Policy Uncertainty ◽  
Data Set ◽  
Stock Liquidity ◽  
Content Type ◽  
Economic Policy Uncertainty ◽  
The Impact

PurposeThe main purpose of this study is to examine whether economic policy uncertainty affects the stock liquidity. Furthermore, this study explores the influencing factors, transmission mechanism and solution path between economic policy uncertainty and the stock liquidity.Design/methodology/approachA data set comprising 97,729 firm-quarter observations of Chinese firms with A-shares listed on the Shenzhen and Shanghai stock exchanges was selected, China's economic policy uncertainty was measured by using the China Economic Policy Uncertainty Index and the impact of economic policy uncertainty on the stock liquidity over the period 2004–2017 was empirically tested. The empirical analysis was based on ordinary least square regression model, and mediation and moderation effect models were used in the further analysis.FindingsThe empirical results show that the higher the economic policy uncertainty, the lower the stock liquidity, which is more significant in firms with an opaque information environment, less investor attention and weak risk resistance ability. The authors argue that the transmission mechanism can be explained by the quality of information disclosure and investor sentiment. Moreover, the negative impact of economic policy uncertainty on the stock liquidity can be mitigated by increasing voluntary disclosures.Originality/valueThis study enriches the literature on factors affecting the stock liquidity from the perspective of macroeconomic policy and provides a reference for policymakers to formulate relevant measures to improve the stock liquidity in emerging markets.

The impact of economic policy uncertainty, news framing and information overload on panic buying behavior in the time of COVID-19: a conceptual exploration

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Abdulqadir Rahomee Ahmed Aljanabi
Keyword(s):  
Economic Policy ◽  
Information Overload ◽  
Policy Uncertainty ◽  
Buying Behavior ◽  
News Framing ◽  
Health Crisis ◽  
Content Type ◽  
Economic Policy Uncertainty ◽  
Buying Behaviour ◽  
The Impact

PurposeThis conceptual paper aims to provide a further understanding of the impact of economic policy uncertainty (EPU), news framing and information overload on panic buying behavior during the COVID-19 pandemic.Design/methodology/approachDrawing on earlier research and news releases about the COVID-19 outbreak, this paper advances testable propositions based on the protection motivation theory and information processing theory.FindingsThis paper infers that the major shift in consumer decision-making towards panic buying is a result of high EPU. International reports have contributed to deepening this uncertainty, and the consequences of this EPU are expected to affect the economic recovery through 2022. Furthermore, the adoption of particular frames of the pandemic has played a key role in the dissemination of misinformation and fake news during the public health crisis and affected purchasing decisions. The study also infers that the perceived threat among consumers is driven by information overload as a source of mistrust towards economic and health information sources.Originality/valueThis paper addresses two theoretical gaps associated with consumer buying behaviour. First, it highlights the impact of EPU, as a macroeconomic indicator, on consumer buying behaviour. Second, this paper is an attempt to integrate theories from different disciplines to foster an adequate understanding of buying behavior during the COVID-19 outbreak period.

Momentum strategies in times of economic policy uncertainty

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Jessica Paule-Vianez ◽  
Júlio Lobão ◽  
Raúl Gómez-Martínez ◽  
Camilo Prado-Román
Keyword(s):  
Economic Policy ◽  
Policy Uncertainty ◽  
Momentum Effect ◽  
Economic Cycle ◽  
Momentum Strategies ◽  
Content Type ◽  
Economic Policy Uncertainty ◽  
Point Increase ◽  
The Us ◽  
The Impact

Purpose This paper aims to evaluate the influence of economic policy uncertainty (EPU) on the momentum effect, analysing its influence depending on the economic cycle and in different quantiles. Design/methodology/approach To determine the influence of EPU in the momentum effect taking into account the economic cycle and the level of the quantile, linear regression and quantile regression have been applied for the period from 2 January 1985 to 30 April 2019 for the US stock market. Findings It is shown that an increased feeling of insecurity associated with EPU reduces the momentum effect, especially in times of recession. Distinguishing by quantiles, an asymmetry in the impact of EPU in the momentum effect is discovered, finding that EPU reduces (increases) the profits of momentum strategies in the lowest (highest) quantiles. In the highest quantiles, an investor can obtain higher extraordinary returns with this strategy. For example, in the highest quantile, a one-point increase in the EPU levels would have increased the daily profitability by 12.7 basis points. These findings have important implications for investors and policymakers. Originality/value To the best of the authors’ knowledge, this is the first paper that evaluates the influence of EPU on the momentum effect by conducting an analysis based on the economic cycle and different quantiles, demonstrating how these factors are relevant in the influence of this uncertainty in the momentum anomaly.

Momentum return volatility, uncertainty, and energy prices: evidence from major international equity markets

2020 ◽  
Vol 12 (4) ◽  
pp. 411-433
Author(s):  
Spyros Spyrou
Keyword(s):  
Economic Policy ◽  
Relevant Literature ◽  
Decomposition Analysis ◽  
Panel Var ◽  
Policy Uncertainty ◽  
Energy Prices ◽  
Content Type ◽  
Economic Policy Uncertainty ◽  
The Us ◽  
The Impact

PurposeThis paper examines the impact of macroeconomic and risk factors on the profitability and volatility of professional momentum portfolios for the US, the UK, Japan and Germany, for the period 1998–2018. Many of the factors employed, such as energy price changes and economic policy uncertainty, have been largely neglected in the relevant literature.Design/methodology/approachRegression analysis, VECTOR AUTOREGRESSION (VAR), Panel-VAR, Variance Decomposition AnalysisFindingsThe results indicate that, since the financial crises in the US and the EU, energy prices and economic-policy uncertainty have become important return determinants, along with market-related uncertainty that seems to have a stable impact over time, especially for the U.S. and U.K. portfolios.Research limitations/implicationsEconomic policy uncertainty significantly affects contemporaneous momentum returns in the US, UK and Japan, mainly between 2007 and 2018, while market-related uncertainty affects all markets during all subperiods. In addition, the variance of market-related uncertainty (VIX) explains a large percentage of the variance in the momentum returns for the US, UK and Germany.Practical implicationsThe main implication of the findings for portfolio managers is that a manager may increase (decrease) exposure to the momentum factor during optimistic (pessimistic) periods and during periods of rising energy prices (high economic policy and market-related uncertainty).Originality/valueThe paper examines the impact of factors, such as energy prices and economic policy uncertainty, which have been largely neglected in the relevant literature on the possible drivers of the momentum strategies. It employs professional portfolios that are often used in practice as benchmark indexes.

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