IDEAS home Printed from https://ideas.repec.org/a/plo/pone00/0285279.html
   My bibliography  Save this article

Asia-Pacific stock market return and volatility in the uncertain world: Evidence from the nonlinear autoregressive distributed lag approach

Author

Listed:
  • Minh Phuoc-Bao Tran
  • Duc Hong Vo

Abstract

This paper examines the effects of three distinct groups of uncertainties on market return and volatility in the Asia-Pacific countries, including (i) the country-specific and US geopolitical risks; (ii) the US economic policy uncertainty; and (iii) the US stock market volatility (using the VIX and SKEW indices). Our sample includes 11 Asia-Pacific countries for the 1985–2022 period. We employ the nonlinear autoregressive distributed lag approach (ARDL) estimation technique to capture the asymmetric effects of uncertainties on market return and volatility, which are documented in the literature. Some findings are documented as follows. First, we find that US uncertainty indices, including US geopolitical risk, US economic policy uncertainty, and US VIX, significantly impact Asia-Pacific stock markets, while the impacts of domestic geopolitical risk and the US skewness index (SKEW) are relatively weak. Second, Asia-Pacific stock markets tend to overreact to uncertainty shocks stemming from US economic policy uncertainty and US geopolitical risk. Third, US economic policy uncertainty has more significant effects than the US geopolitical risk. Finally, our research documents that Asia-Pacific stock markets react heterogeneously to good and bad news from US VIX. Specifically, an increase in US VIX (bad news) has a stronger impact than a decrease in US VIX (good news). Policy implications have emerged based on the findings of this study.

Suggested Citation

  • Minh Phuoc-Bao Tran & Duc Hong Vo, 2023. "Asia-Pacific stock market return and volatility in the uncertain world: Evidence from the nonlinear autoregressive distributed lag approach," PLOS ONE, Public Library of Science, vol. 18(5), pages 1-17, May.
  • Handle: RePEc:plo:pone00:0285279
    DOI: 10.1371/journal.pone.0285279
    as

    Download full text from publisher

    File URL: https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0285279
    Download Restriction: no

    File URL: https://journals.plos.org/plosone/article/file?id=10.1371/journal.pone.0285279&type=printable
    Download Restriction: no

    File URL: https://libkey.io/10.1371/journal.pone.0285279?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Elyas Elyasiani & Luca Gambarelli & Silvia Muzzioli, 2021. "The skewness index: uncovering the relationship with volatility and market returns," Applied Economics, Taylor & Francis Journals, vol. 53(31), pages 3619-3635, July.
    2. Abel, Andrew B., 1988. "Stock prices under time-varying dividend risk : An exact solution in an infinite-horizon general equilibrium model," Journal of Monetary Economics, Elsevier, vol. 22(3), pages 375-393.
    3. Liang, Chin Chia & Troy, Carol & Rouyer, Ellen, 2020. "U.S. uncertainty and Asian stock prices: Evidence from the asymmetric NARDL model," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).
    4. Nicholas Bloom, 2009. "The Impact of Uncertainty Shocks," Econometrica, Econometric Society, vol. 77(3), pages 623-685, May.
    5. Choi, Sangyup & Furceri, Davide & Loungani, Prakash & Mishra, Saurabh & Poplawski-Ribeiro, Marcos, 2018. "Oil prices and inflation dynamics: Evidence from advanced and developing economies," Journal of International Money and Finance, Elsevier, vol. 82(C), pages 71-96.
    6. Christos Bouras & Christina Christou & Rangan Gupta & Tahir Suleman, 2020. "Geopolitical Risks, Returns, and Volatility in Emerging Stock Markets: Evidence from a Panel GARCH Model," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 55(8), pages 1841-1856, July.
    7. J. Tobin, 1958. "Liquidity Preference as Behavior Towards Risk," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 25(2), pages 65-86.
    8. Christopher D. Carroll, 1997. "Buffer-Stock Saving and the Life Cycle/Permanent Income Hypothesis," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(1), pages 1-55.
    9. Roland Fuss & Ferdinand Mager & Holger Wohlenberg & Lu Zhao, 2011. "The impact of macroeconomic announcements on implied volatility," Applied Financial Economics, Taylor & Francis Journals, vol. 21(21), pages 1571-1580.
    10. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    11. Antonakakis, Nikolaos & Chatziantoniou, Ioannis & Filis, George, 2013. "Dynamic co-movements of stock market returns, implied volatility and policy uncertainty," Economics Letters, Elsevier, vol. 120(1), pages 87-92.
    12. Kang, Wensheng & Lee, Kiseok & Ratti, Ronald A., 2014. "Economic policy uncertainty and firm-level investment," Journal of Macroeconomics, Elsevier, vol. 39(PA), pages 42-53.
    13. Ben S. Bernanke, 1983. "Irreversibility, Uncertainty, and Cyclical Investment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 98(1), pages 85-106.
    14. Barsky, Robert B, 1989. "Why Don't the Prices of Stocks and Bonds Move Together?," American Economic Review, American Economic Association, vol. 79(5), pages 1132-1145, December.
    15. Imen Dakhlaoui & Chaker Aloui, 2016. "The Interactive Relationship Between the US Economic Policy Uncertainty and BRIC Stock Markets," International Economics, CEPII research center, issue 146, pages 141-157.
    16. Katrakilidis, Constantinos & Trachanas, Emmanouil, 2012. "What drives housing price dynamics in Greece: New evidence from asymmetric ARDL cointegration," Economic Modelling, Elsevier, vol. 29(4), pages 1064-1069.
    17. Schwert, G William, 1990. "Stock Returns and Real Activity: A Century of Evidence," Journal of Finance, American Finance Association, vol. 45(4), pages 1237-1257, September.
    18. Boyle, Glenn W & Peterson, James D, 1995. "Monetary Policy, Aggregate Uncertainty, and the Stock Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(2), pages 570-582, May.
    19. Lillie Lam & James Yetman, 2013. "Asia's Decoupling: Fact, Fairytale or Forecast?," Pacific Economic Review, Wiley Blackwell, vol. 18(3), pages 321-344, August.
    20. Axel Hedström & Nathalie Zelander & Juha Junttila & Gazi Salah Uddin, 2020. "Emerging Market Contagion Under Geopolitical Uncertainty," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 56(6), pages 1377-1401, May.
    21. Ramiah, Vikash & Cam, Marie-Anne & Calabro, Michael & Maher, David & Ghafouri, Shahab, 2010. "Changes in equity returns and volatility across different Australian industries following the recent terrorist attacks," Pacific-Basin Finance Journal, Elsevier, vol. 18(1), pages 64-76, January.
    22. Levent Erdoğan & Reşat Ceylan & Mutawakil Abdul-Rahman, 2022. "The Impact of Domestic and Global Risk Factors on Turkish Stock Market: Evidence from the NARDL Approach," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 58(7), pages 1961-1974, May.
    23. Tavares, José, 2009. "Economic integration and the comovement of stock returns," Economics Letters, Elsevier, vol. 103(2), pages 65-67, May.
    24. Lennart Sjöberg & Elisabeth Engelberg, 2010. "Risk Perception and Movies: A Study of Availability as a Factor in Risk Perception," Risk Analysis, John Wiley & Sons, vol. 30(1), pages 95-106, January.
    25. Das, Debojyoti & Kannadhasan, M. & Bhattacharyya, Malay, 2019. "Do the emerging stock markets react to international economic policy uncertainty, geopolitical risk and financial stress alike?," The North American Journal of Economics and Finance, Elsevier, vol. 48(C), pages 1-19.
    26. Ghulam Sarwar & Walayet Khan, 2017. "The Effect of US Stock Market Uncertainty on Emerging Market Returns," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 53(8), pages 1796-1811, August.
    27. Adrienne Kearney & Raymond Lombra, 2004. "Stock market volatility, the news, and monetary policy," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 28(2), pages 252-259, June.
    28. Yang, Jianlei & Yang, Chunpeng, 2021. "The impact of mixed-frequency geopolitical risk on stock market returns," Economic Analysis and Policy, Elsevier, vol. 72(C), pages 226-240.
    29. Liu, Li & Zhang, Tao, 2015. "Economic policy uncertainty and stock market volatility," Finance Research Letters, Elsevier, vol. 15(C), pages 99-105.
    30. Chen, Jian & Jiang, Fuwei & Xue, Shuyu & Yao, Jiaquan, 2019. "The world predictive power of U.S. equity market skewness risk," Journal of International Money and Finance, Elsevier, vol. 96(C), pages 210-227.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kundu, Srikanta & Paul, Amartya, 2022. "Effect of economic policy uncertainty on stock market return and volatility under heterogeneous market characteristics," International Review of Economics & Finance, Elsevier, vol. 80(C), pages 597-612.
    2. Simran, & Sharma, Anil Kumar, 2024. "Asymmetric nexus between economic policy uncertainty and the Indian stock market: Evidence using NARDL approach," The Quarterly Review of Economics and Finance, Elsevier, vol. 93(C), pages 91-101.
    3. Chin Chia Liang & Carol Troy & Ellen Rouyer, 2020. "The Stock Price Impact of Domestic and Foreign Economic Policy Uncertainty: Evidence from China," Economics Bulletin, AccessEcon, vol. 40(2), pages 1747-1755.
    4. Liang, Chin Chia & Troy, Carol & Rouyer, Ellen, 2020. "U.S. uncertainty and Asian stock prices: Evidence from the asymmetric NARDL model," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).
    5. Smales, Lee A., 2020. "Examining the relationship between policy uncertainty and market uncertainty across the G7," International Review of Financial Analysis, Elsevier, vol. 71(C).
    6. Duc Hong Vo & Minh Phuoc-Bao Tran, 2023. "Do geopolitical risks from the economic powers dominate world gold return? Evidence from the quantile connectedness approach," Economic Change and Restructuring, Springer, vol. 56(6), pages 4661-4688, December.
    7. Stavros Degiannakis & George Filis, 2019. "Forecasting European economic policy uncertainty," Scottish Journal of Political Economy, Scottish Economic Society, vol. 66(1), pages 94-114, February.
    8. Sohag, Kazi & Hammoudeh, Shawkat & Elsayed, Ahmed H. & Mariev, Oleg & Safonova, Yulia, 2022. "Do geopolitical events transmit opportunity or threat to green markets? Decomposed measures of geopolitical risks," Energy Economics, Elsevier, vol. 111(C).
    9. IKM Mokhtarul Wadud & Omar H. M. N. Bashar & Huson Joher Ali Ahmed & William Dimovski, 2022. "Property price dynamics and asymmetric effects of economic policy uncertainty: New evidence from the Australian capital cities," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(4), pages 4359-4380, December.
    10. Yao, Can-Zhong & Sun, Bo-Yi, 2018. "The study on the tail dependence structure between the economic policy uncertainty and several financial markets," The North American Journal of Economics and Finance, Elsevier, vol. 45(C), pages 245-265.
    11. Adeel Riaz & Ouyang Hongbing & Shujahat Haider Hashmi & Muhammad Asif Khan, 2018. "The Impact of Economic Policy Uncertainty on US Transportation Sector Stock Returns," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 8(4), pages 163-170, October.
    12. Minh Phuoc-Bao Tran & Duc Hong Vo, 2023. "Market return spillover from the US to the Asia-Pacific Countries: The Role of Geopolitical Risk and the Information & Communication Technologies," PLOS ONE, Public Library of Science, vol. 18(12), pages 1-19, December.
    13. Nusair, Salah A. & Al-Khasawneh, Jamal A., 2022. "Impact of economic policy uncertainty on the stock markets of the G7 Countries:A nonlinear ARDL approach," The Journal of Economic Asymmetries, Elsevier, vol. 26(C).
    14. Yuan, Di & Li, Sufang & Li, Rong & Zhang, Feipeng, 2022. "Economic policy uncertainty, oil and stock markets in BRIC: Evidence from quantiles analysis," Energy Economics, Elsevier, vol. 110(C).
    15. Chow Sheung-Chi & Cunado Juncal & Gupta Rangan & Wong Wing-Keung, 2018. "Causal relationships between economic policy uncertainty and housing market returns in China and India: evidence from linear and nonlinear panel and time series models," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 22(2), pages 1-15, April.
    16. Jun Wen & Samia Khalid & Hamid Mahmood & Xiuyun Yang, 2022. "Economic policy uncertainty and growth nexus in Pakistan: a new evidence using NARDL model," Economic Change and Restructuring, Springer, vol. 55(3), pages 1701-1715, August.
    17. Song, Lu & Tian, Gengyu & Jiang, Yonghong, 2022. "Connectedness of commodity, exchange rate and categorical economic policy uncertainties — Evidence from China," The North American Journal of Economics and Finance, Elsevier, vol. 60(C).
    18. Mobeen Ur Rehman & Wafa Ghardallou & Nasir Ahmad & Xuan Vinh Vo & Sang Hoon Kang, 2024. "Does effect of risk and uncertainties on US sectoral returns differ across different investment horizons and market conditions," Risk Management, Palgrave Macmillan, vol. 26(1), pages 1-49, February.
    19. Christina Anderl & Guglielmo Maria Caporale, 2023. "Asymmetries, uncertainty and inflation: evidence from developed and emerging economies," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 47(4), pages 984-1017, December.
    20. Guglielmo Maria Caporale & Menelaos Karanasos & Stavroula Yfanti, 2019. "Macro-Financial Linkages in the High-Frequency Domain: The Effects of Uncertainty on Realized Volatility," CESifo Working Paper Series 8000, CESifo.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:plo:pone00:0285279. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: plosone (email available below). General contact details of provider: https://journals.plos.org/plosone/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.