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Do the emerging stock markets react to international economic policy uncertainty, geopolitical risk and financial stress alike?

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  • Das, Debojyoti
  • Kannadhasan, M.
  • Bhattacharyya, Malay

Abstract

We examine the effects of international (US based) economic policy uncertainty, geopolitical risk and financial stress alike on the emerging stock markets. We consider 24 emerging markets to understand the receptivity of these markets to the various US based macroeconomic shocks. We use monthly data ranging from January 1997 to May 2018 and use the nonparametric causality-in-quantiles test as the methodological approach. We find that: (a) the impact of these shocks is heterogeneous across the markets in terms of causality and intensity. (b) the influence of EPU is mostly profound and significant as compared to other two shock indicators i.e. GPR and FS. (c) the causality-in-mean is more significant and stronger rather than the causality-in-variance. Lastly, (d) the predictability of EPU, GPR and FS is restricted in extreme upper tails. We believe these findings are relevant to the investors in EMs for the purpose of international portfolio diversification and developing investment strategies at times of turbulent economic conditions.

Suggested Citation

  • 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.
    • Handle: RePEc:eee:ecofin:v:48:y:2019:i:c:p:1-19
    DOI: 10.1016/j.najef.2019.01.008
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    More about this item

    Keywords

    Economic policy uncertainty; Geopolitical risk; Financial stress; Emerging markets; Causality-in-quantiles;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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