Policy uncertainty in Australian financial markets

2020 ◽  
pp. 031289622095912
Author(s):  
Lee A. Smales
Keyword(s):  
Economic Policy ◽  
Financial Markets ◽  
Stock Returns ◽  
Risk Premium ◽  
Negative Impact ◽  
Jel Classification ◽  
Policy Uncertainty ◽  
Corporate Managers ◽  
Excess Stock Returns ◽  
The Relationship

Economic policy touches most facets of corporate decision-making and variations in policy can elicit significant changes in financial performance and asset prices. We utilize the economic policy uncertainty (EPU) measure of Baker et al. to investigate the extent to which policy uncertainty influences Australian financial market returns. Our empirical results demonstrate that both domestic and global uncertainty have a significant negative impact on excess stock returns, changes in bond yields and Australian dollar (AUD) returns. The relationship is concentrated in the left tail of the return distribution and largely driven by increases in policy uncertainty. Although the identified relationship is negative throughout the sample period, the magnitude of the relationship appears to be state dependent and is influenced by periods of high uncertainty, recession and the lead-up to federal elections. The most plausible explanation for our results is that uncertainty about economic policy is channelled to financial markets via the discount rate effect, resulting in a higher risk premium. Our results are important for investors, corporate managers and policy makers wishing to navigate periods of policy uncertainty. JEL Classification: G10, G12, G14, G15

scholarly journals Evidence of Economic Policy Uncertainty and COVID-19 Pandemic on Global Stock Returns

2022 ◽  
Vol 15 (1) ◽  
pp. 28
Author(s):  
Thomas Chinan Chiang
Keyword(s):  
Economic Policy ◽  
Stock Returns ◽  
Stock Return ◽  
Negative Impact ◽  
Global Market ◽  
Policy Uncertainty ◽  
Economic Policy Uncertainty ◽  
The Impact ◽  
Global Stock ◽  
The U.S

This paper examines the impact of changes in economic policy uncertainty (EPU) and COVID-19 shock on stock returns. Tests of 16 global stock market indices, using monthly data from January 1990 to August 2021, suggest a negative relation between the stock return and a country’s EPU. Evidence suggests that a rise in the U.S. EPU causes not only a decline in a country’s stock return, but also a negative spillover effect on the global market; however, we cannot find a comparable negative effect from global EPU to U.S. stocks. Evidence suggests that the COVID-19 pandemic has a negative impact that significantly affects stock return worldwide. This study also finds an indirect COVID-19 impact that runs through a change in domestic EPU and, in turn, affects stock return. Evidence shows significant COVID-19 effects that change relative stock returns between the U.S. and global markets, creating a decoupling phenomenon.

scholarly journals The effects of economic policy uncertainty on stock market returns: Evidence from Brazil

2021 ◽  
Vol 19 (3) ◽  
pp. 53-84
Author(s):  
Cristiane Gea ◽  
Luciano Vereda ◽  
Antonio Carlos Figueiredo Pinto ◽  
Marcelo Cabus Klotzle
Keyword(s):  
Economic Policy ◽  
Stock Market ◽  
Stock Returns ◽  
Growth Rates ◽  
Policy Uncertainty ◽  
Stock Market Returns ◽  
Economic Policy Uncertainty ◽  
Future Performance ◽  
Excess Stock Returns ◽  
Dividend Growth

This article investigates the effects of economic policy uncertainty on the Brazilian stock market. We link excess returns and dividend growth rates to the economic policy uncertainty index of Baker et al. (2016) and other control variables. In recent years, Brazil has experienced political tensions, which affected its economic policy. Therefore, this country is the most suitable environment to test the hypothesis that this measure of economic policy uncertainty has an informational content not wholly reflected in the usual constructs of economic uncertainty and economic distress. Our results show that economic policy uncertainty (i) correlates negatively with current excess stock returns; (ii) correlates positively with future excess stock returns, showing itself to be a good predictor of future performance of the stock market; (iii) is not significantly related to future dividend growth rates; and (iv) anticipates changes in discount rates.

Heuristic biases in investment decision-making and perceived market efficiency

2018 ◽  
Vol 10 (1) ◽  
pp. 85-110 ◽  
Author(s):  
Syed Zulfiqar Ali Shah ◽  
Maqsood Ahmad ◽  
Faisal Mahmood
Keyword(s):  
Financial Markets ◽  
Market Efficiency ◽  
Negative Impact ◽  
Investment Decisions ◽  
Sampling Technique ◽  
Investment Strategy ◽  
Individual Investors ◽  
Content Type ◽  
Specific Investment ◽  
The Relationship

Purpose This paper aims to clarify the mechanism by which heuristics influences the investment decisions of individual investors, actively trading on the Pakistan Stock Exchange (PSX), and the perceived efficiency of the market. Most studies focus on well-developed financial markets and very little is known about investors’ behaviour in less developed financial markets or emerging markets. The present study contributes to filling this gap in the literature. Design/methodology/approach Investors’ heuristic biases have been measured using a questionnaire, containing numerous items, including indicators of speculators, investment decisions and perceived market efficiency variables. The sample consists of 143 investors trading on the PSX. A convenient, purposively sampling technique was used for data collection. To examine the relationship between heuristic biases, investment decisions and perceived market efficiency, hypotheses were tested by using correlation and regression analysis. Findings The paper provides empirical insights into the relationship of heuristic biases, investment decisions and perceived market efficiency. The results suggest that heuristic biases (overconfidence, representativeness, availability and anchoring) have a markedly negative impact on investment decisions made by individual investors actively trading on the PSX and on perceived market efficiency. Research limitations/implications The primary limitation of the empirical review is the tiny size of the sample. A larger sample would have given more trustworthy results and could have empowered a more extensive scope of investigation. Practical implications The paper encourages investors to avoid relying on heuristics or their feelings when making investments. It provides awareness and understanding of heuristic biases in investment management, which could be very useful for decision makers and professionals in financial institutions, such as portfolio managers and traders in commercial banks, investment banks and mutual funds. This paper helps investors to select better investment tools and avoid repeating expensive errors, which occur due to heuristic biases. They can improve their performance by recognizing their biases and errors of judgment, to which we are all prone, resulting in a more efficient market. So, it is necessary to focus on a specific investment strategy to control “mental mistakes” by investors, due to heuristic biases. Originality/value The current study is the first of its kind, focusing on the link between heuristics, individual investment decisions and perceived market efficiency within the specific context of Pakistan.

ECONOMIC POLICY UNCERTAINTY AND THE BITCOIN MARKET: AN INVESTIGATION IN THE COVID-19 PANDEMIC WITH TRANSFER ENTROPY

2021 ◽  
pp. 1-27
Author(s):  
TOAN LUU DUC HUYNH ◽  
MEI WANG ◽  
VINH XUAN VO
Keyword(s):  
Economic Policy ◽  
Risk Premium ◽  
Trading Volume ◽  
Transfer Entropy ◽  
Policy Uncertainty ◽  
Risk Averse ◽  
Entropy Model ◽  
Economic Policy Uncertainty ◽  
Bid Ask Spread ◽  
Practical Implications

This paper investigates the prediction power of economic policy uncertainty on Bitcoin trading (return, volume, and volatility) over the period from May 2013 to June 2019. We employ the Transfer Entropy model with the following two different regimes (i) stationary and (ii) nonstationary assumption. We construct different algorithm calculations for returns, volume and volatility to test how this proxy impacts. We find that the global Economic Policy Uncertainty negatively causes Bitcoin volumes and volatilities. Therefore, under uncertain regimes, investors are risk-averse to trade, which makes the market less volatile. Our findings confirm the existence of pessimistic risk premium, the theory of deteriorating liquidity and the widen bid-ask spread, which lead to a decline in trading volume under uncertainties in the Bitcoin market. By using different reliable data sources as well as expanding timeframe until May 2020 with COVID-19 pandemic, our results remain robust. Hence, the practical implications will be the useful tools for different parties in the Bitcoin market in the financial turbulence context.

The Impact of Economic Sentiment, Consumer, Producer and Investor's Confidence Indices on Stock Returns of the Listed Companies in FTSE-20 in Greece

2018 ◽  
pp. 162-209
Author(s):  
Constantine Cantzos ◽  
Petros Kalantonis ◽  
Aristidis Papagrigoriou ◽  
Stefanos Theotokas
Keyword(s):  
Stock Returns ◽  
Risk Premium ◽  
Macroeconomic Variables ◽  
Production Index ◽  
Behavioral Indicators ◽  
Portfolio Returns ◽  
Long Run ◽  
Short Run ◽  
The Impact ◽  
The Relationship

This chapter examines the relationship between stock returns of companies listed in the FTSE-20 on the Athens Exchange and behavioral indicators. The research is based on the behavioral APT model, which examines stock returns' risk factors through the involvement of macroeconomic variables and behavioral indicators. The data is the closing price of 17 shares listed in the FTSE-20 index, a number of macroeconomic variables, and a series of behavioral indicators for the period of January 2001-December 2014. Regressions were conducted with dependent variable stock returns of a portfolio invested equally in these 17 stocks. In addition, the research tests the existence of long-run and short-run equilibrium and causality. The change in the industrial production index along with the risk premium have a positive and significant impact on the portfolio returns. Johansen's test showed that there is a long-run equilibrium between stock returns, macroeconomic variables, and behavioral indicators. The VECM and VAR models showed that there is not long and short-run causality, not even Granger causality. No similar research has been conducted in Greece, thus it fills a literature gap.

Global Economic Policy Uncertainty and Tourism of Fragile Five Countries: Evidence from Time and Frequency Approaches

2020 ◽  
pp. 004728752092124
Author(s):  
Tsung-Pao Wu ◽  
Hung-Che Wu
Keyword(s):  
Economic Policy ◽  
National Security ◽  
High Frequency ◽  
Annual Data ◽  
Frequency Change ◽  
Policy Uncertainty ◽  
Economic Policy Uncertainty ◽  
The Government ◽  
Changes Over Time ◽  
The Relationship

The purpose of this study is to examine the relationship between global economic policy uncertainty (GEPU) and tourism activities in the Fragile Five (F5) countries, namely, Brazil, India, Indonesia, South Africa, and Turkey. By using wavelet transform context structures and the annual data during the period of 1997–2016. The finding shows that the relationship is generally positive but changes over time, displaying low- to high-frequency cycles. Moreover, the timing and frequency change when GEPU co-moves with tourism. It can be recommended that the government maintain the national security and peace protocols.

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