Economic policy uncertainty and stock market returns: Evidence from Canada

Batabyal, Sourav; Killins, Robert N.

doi:10.1016/j.jeca.2021.e00215

Cited by 31 publications

(17 citation statements)

References 40 publications

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“…Unlike previous studies, we further used a single variable through an interaction term (EPGR) to measure the simultaneous dynamics of both uncertainty indexes on inflation. While studies have examined the nexus between uncertainty measures and the macroeconomy (Stock and Watson 2012 ; Bloom 2014 ; Antonakakis et al 2014 ; Wen et al 2019 ; Leduc and Liu 2020 ), trade (Caldara et al 2019 ), food, stock and precious metal prices (Pastor and Verones 2012 ; Batabyl and Kilian 2021 ; Yilanci and Kilci et al 2021 ); corporate risks (Zhang et al 2021 ), renewable energy and carbon emissions (Khan and Su 2022 ; Li et al 2022 ), there is little empirical evidence on the dynamics of inflation and uncertainty measures using the wavelet-based approach. This study employs the continuous wavelet transform (CWT) to track the evolution of model variables across frequency bands and periods.…”

Section: Introductionmentioning

confidence: 99%

Uncertainty measures and inflation dynamics in selected global players: a wavelet approach

Adeosun

Tabash

et al. 2022

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This study investigates the dynamic relationship between economic policy uncertainty (EPU), geopolitical risks (GPR), the interaction of EPU and GPR (EPGR), and inflation in the USA, Canada, the UK, Japan, and China. We employ the continuous wavelet transform (CWT) to track the evolution of model variables and the wavelet coherence (WC) to examine the co-movement and lead-lag status of the series across different frequencies and time. To strengthen the WC, we apply the multiple wavelet coherence (MWC) to determine how good the linear combination of independent variables co-moves with inflation across various time-frequency domains. The CWT reveals heterogeneous characteristics in the evolution of each variable across frequencies. Inflation across samples shows strong variance in the short-term and medium-term while the volatility fizzles out in the long-term. For the explanatory variables, a similar pattern holds for EPU except for Japan and China, where coherence is evident in the short-term. The USA’s and Canada’s GPR reveal strong coherence in the short- and medium-term. Also, the UK and China reflect strong coherence in the short-term but weak significance in the medium-term, while Japan’s GPR reflects only strong coherence in the short-term. The EPGR shows strong variation in the short-and-medium-term in the samples except in China. The WC’s phase-difference reflects bidirectional causalities and switches in signs among series across different scales and periods in the samples, while the MWC reveals the combined intensity, strength, and significance of both EPU and GPR in predicting inflation across frequency bands among the countries. Findings also show significant co-movement among series at date-stamped periods, corroborating critical global events such as the Asian financial crisis, Global financial crisis, and COVID-19 pandemic. The paper has policy implications.

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Section: Introductionmentioning

confidence: 99%

Uncertainty measures and inflation dynamics in selected global players: a wavelet approach

Adeosun

Tabash

et al. 2022

Qual Quant

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“…Regarding the policy responses, an increase in the containment and health index is associated with positive stock market returns [ 23 , 24 , 27 ] and mitigates market volatility [ 25 ]. Meanwhile, heightened economic policy uncertainty is related to negative market returns [ 26 , 30 ] and strengthens volatility in the short run [ 28 , 29 ]. LIBOR is found to have significant explanatory power for stock returns [ 34 ].…”

Section: Literature Reviewmentioning

confidence: 99%

“…Meanwhile, previous studies have found significant effects of the Covid-19 pandemic [22][23][24][25], policy responses [23][24][25][26][27][28][29][30], and macroeconomic fundamentals [31][32][33][34] on stock market returns and volatility. Specifically, increased Covid-19 new cases are associated with lower stock market returns [22][23][24], while the effect on stock market volatility is mixed [25].…”

Section: Literature Reviewmentioning

confidence: 99%

“…The Containment and Health Index (CHI) and Economic Policy Uncertainty (EPU) index are used to proxy the policy responses to the Covid-19 pandemic [37,38]. These choices follow recent studies indicating the significant effects of CHI [23][24][25]27] and EPU [26,[28][29][30] on stock market returns and volatility during the Covid-19 pandemic.…”

Section: Datamentioning

confidence: 99%

“…Other studies have focused on the connectedness among different markets with the exposure to market risk from the Covid-19 pandemic [17][18][19][20][21]. Meanwhile, previous studies have confirmed significant effects of the Covid-19 pandemic [22][23][24][25], policy responses [23][24][25][26][27][28][29][30] and macroeconomic fundamentals [31][32][33][34] on stock market return and volatility.…”

Section: Introductionmentioning

confidence: 99%

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Vietnam has undergone four waves of the Covid-19 pandemic in 2020 and 2021, which have posed significant market risks to various sectors. Understanding the market risk of Vietnamese sectors and its changes is important for policy implementation to support the economy after the pandemic. This study measures the sectoral market risks and examines the effects of the pandemic, policy responses and macroeconomic fundamentals on the market risks across sectors in Vietnam. We employ the Value-at-Risk (VaR) and Conditional Value-at-Risk (CVaR) techniques to measure the market risks for 24 sectors from 2012 to 2021. The market risk levels across Vietnamese sectors have changed significantly in response to the pandemic. Oil and Gas and Services sectors show the largest potential loss during the two Covid-19 waves in 2020. The Securities sector is the riskiest sector during the last two Covid-19 waves in 2021. Our results indicate that the new Covid-19 cases reported by the Government increase the market risk levels across Vietnamese sectors. On the other hand, enhancing containment and health policy and reducing economic policy uncertainty result in lower market risk across sectors. We also find that macroeconomic fundamentals such as the exchange rate and interest rate significantly affect the market risks across sectors in Vietnam.

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Distorted probability operator for dynamic portfolio optimization in times of socio-economic crisis

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2022

Cent Eur J Oper Res

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A robust optimal control of discrete time Markov chains with finite terminal T and bounded costs or wealth using probability distortion is studied. The time inconsistency of these distortion operators and hence its lack of dynamic programming are discussed. Due to that, dynamic versions of these operators are introduced, and its availability for dynamic programming is demonstrated. Based on dynamic programming algorithm, existence of the optimal policy is justified and an application of the theory to portfolio optimization along with a numerical study is also presented.

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Economic policy uncertainty and stock market returns: Evidence from Canada

Cited by 31 publications

References 40 publications

Uncertainty measures and inflation dynamics in selected global players: a wavelet approach

Uncertainty measures and inflation dynamics in selected global players: a wavelet approach

The impacts of the Covid-19 pandemic, policy responses and macroeconomic fundamentals on market risks across sectors in Vietnam

Distorted probability operator for dynamic portfolio optimization in times of socio-economic crisis

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