Dynamic connectedness between stock markets in the presence of COVID-19 pandemic: Does economic policy uncertainty matter?

Abstract In this paper, we investigate the dynamic connectedness between the stock indices in the eight most endemic countries by the COVID-19 (China, Italy, France, Germany, Spain, Russia, U.S., and the U.K) as well as the effect of the economic policy uncertainty (EPU) by implementing the TVP-VAR model for daily data over the period spanning from 01/01/2015 to 05/18/2020. Results show that stock markets are highly connected during the entire period, while the dynamic spillovers reached unprecedented heights during the COVID-19 pandemic in the first quarter of the year 2020. Moreover, we find that the European stock markets transmit more spillovers to all other stock markets more than they receive (except for Italy), mainly during the outbreak of the COVID-19 pandemic. Also, findings show that the sign of the effect of the EPU on the net connectedness changes during the onset of the pandemic, showing that information spillovers from a given market may be seen as good or bad news for other markets, given the economic situation prevailing. From the results of this study, important implications can be provided for individual investors, portfolio managers, policymakers, investment banks, and central banks.

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Dynamic connectedness between stock markets in the presence of the COVID-19 pandemic: does economic policy uncertainty matter?

Financial Innovation ◽

10.1186/s40854-021-00227-3 ◽

2021 ◽

Vol 7 (1) ◽

Author(s):

Manel Youssef ◽

Khaled Mokni ◽

Ahdi Noomen Ajmi

Keyword(s):

Economic Policy ◽

Stock Markets ◽

Investment Banks ◽

Individual Investors ◽

Policy Uncertainty ◽

Economic Policy Uncertainty ◽

Daily Data ◽

The Us ◽

Portfolio Managers ◽

The Uk

AbstractThis study investigates the dynamic connectedness between stock indices and the effect of economic policy uncertainty (EPU) in eight countries where COVID-19 was most widespread (China, Italy, France, Germany, Spain, Russia, the US, and the UK) by implementing the time-varying VAR (TVP-VAR) model for daily data over the period spanning from 01/01/2015 to 05/18/2020. Results showed that stock markets were highly connected during the entire period, but the dynamic spillovers reached unprecedented heights during the COVID-19 pandemic in the first quarter of 2020. Moreover, we found that the European stock markets (except Italy) transmitted more spillovers to all other stock markets than they received, primarily during the COVID-19 outbreak. Further analysis using a nonlinear framework showed that the dynamic connectedness was more pronounced for negative than for positive returns. Also, findings showed that the direction of the EPU effect on net connectedness changed during the pandemic onset, indicating that information spillovers from a given market may signal either good or bad news for other markets, depending on the prevailing economic situation. These results have important implications for individual investors, portfolio managers, policymakers, investment banks, and central banks.

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Does US Economic Policy Uncertainty matter for European stock markets volatility?

Physica A Statistical Mechanics and its Applications ◽

10.1016/j.physa.2018.08.019 ◽

2018 ◽

Vol 512 ◽

pp. 215-221 ◽

Cited By ~ 16

Author(s):

Dexiang Mei ◽

Qing Zeng ◽

Yaojie Zhang ◽

Wenjing Hou

Keyword(s):

Economic Policy ◽

Stock Markets ◽

Policy Uncertainty ◽

Economic Policy Uncertainty ◽

European Stock Markets

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Do Asian emerging stock markets react to international economic policy uncertainty and geopolitical risk alike? A quantile regression approach

Finance Research Letters ◽

10.1016/j.frl.2019.08.024 ◽

2020 ◽

Vol 34 ◽

pp. 101276 ◽

Cited By ~ 6

Author(s):

M. Kannadhasan ◽

Debojyoti Das

Keyword(s):

International Economic ◽

Economic Policy ◽

Quantile Regression ◽

Stock Markets ◽

Policy Uncertainty ◽

Economic Policy Uncertainty ◽

Emerging Stock Markets ◽

Regression Approach

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The Economic Policy Uncertainty in China, the United States, and Europe: The Empirical Impact on Chinese Stock Markets

Applied Economics and Finance ◽

10.11114/aef.v6i5.4370 ◽

2019 ◽

Vol 6 (5) ◽

pp. 131

Author(s):

Wannakomol Supachart

Keyword(s):

United States ◽

Economic Policy ◽

Stock Markets ◽

The United States ◽

Policy Uncertainty ◽

Cross Sectional ◽

Economic Policy Uncertainty ◽

Chinese Markets ◽

Chinese Stock Markets ◽

The Impact

The objective of this paper is to analyze the impact of economic policy uncertainty (EPU) in China, the United States, and Europe, which are influent to the Chinese stock markets. We employed Vector Autoregression (VAR) model with relative variables including the EPU indices and three Chinese stock markers indices to display the impulse responses of the markets to the EPUs. Our results indicate that the Chinese stock markets negatively respond to their domestic economic policy uncertainty in the first, second, and third month after the EPU shocks. Moreover, we also found the negative responses of the Chinese markets to the EPU from the United States that require five months to rebalance the markets. However, the Chinese markets seem positively respond to the shocks of the economic policy uncertainty in Europe and also took five months to archive market rebalancing. The significant correlation of the economic policy uncertainty between China and the United States resulted in cross-sectional correlation estimates among the EPU indices. Furthermore, there is the reasonable interesting result to claim that the economic policy uncertainty in China is statistically influenced by their own trade and fiscal policy uncertainty that may be considered to be related with China-US trade war in our conclusion.

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