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Impact of US Uncertainties on Emerging and Mature Markets: Evidence from a Quantile-Vector Autoregressive Approach

Author

Listed:
  • Helena Chuliá

    (Riskcenter-IREA and Department of Econometrics, Universitat de Barcelona,Spain)

  • Rangan Gupta

    (University of Pretoria, Pretoria, South Africa)

  • Jorge M. Uribe

    (Department of Economics, Universidad del Valle, Ciudadela Universitaria Melendez, Cali, Colombia.)

  • Mark E. Wohar

    (College of Business Administration, University of Nebraska at Omaha and School of Business and Economics, Loughborough University, Leicestershire, UK)

Abstract

In the wake of the recent financial crisis, a growing literature measures, and analyses the impact of uncertainty on international financial markets. These studies are primarily based on conditional mean-based models. Quantile models can be employed to capture the heavy-tails of stock returns, however, they are limited to causal relationships, and hence are silent about the sign and persistence of any uncertainty shocks – both of which are important information for investors. Our paper is the first to employ quantile impulse-response functions obtained from multivariate quantile models to analyze the impact of US policy and US equity market uncertainties on not only domestic stock returns, but also stock returns of mature and emerging markets. Using daily data over the period January 1998 to March 2016, we find that during episodes of financial distress, an uncertainty shock reduces stock market returns; both in mature and emerging markets, but in higher magnitudes for the latter, while it increases the highest quantiles of returns, only for the mature markets. Policy uncertainty is a less relevant factor, but it still impacts negatively the stock market dynamics during episodes of financial distress, especially for the emerging markets. These results contrast with the market reactions to uncertainty in the median scenarios, which tend to be insignificant in all the cases.

Suggested Citation

  • Helena Chuliá & Rangan Gupta & Jorge M. Uribe & Mark E. Wohar, 2016. "Impact of US Uncertainties on Emerging and Mature Markets: Evidence from a Quantile-Vector Autoregressive Approach," Working Papers 201656, University of Pretoria, Department of Economics.
  • Handle: RePEc:pre:wpaper:201656
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    Keywords

    Economic Policy and Equity Market Uncertainties; Emerging and Mature Stock Markets; Quantile Vector Autoregressive Model;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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