On the effects of policy uncertainty on stock prices

Bahmani‐Oskooee, Mohsen; Saha, Sujata

doi:10.1007/s12197-019-09471-x

Cited by 26 publications

(31 citation statements)

References 41 publications

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“…ese policy uncertainties have a significant impact on financial markets and a growing interest in the literature relating to the link between EPU and international financial markets, most especially the stock markets, which have led several researchers to focus on this area. us, studies by Brogaard and Detzel [37], Arouri et al [38], Bahmani-Oskooee and Saha [12], Adam [39], Asafo-Adjei et al [40], and Chiang [41] have demonstrated that heightened uncertainty hurts stock returns. Moreover, Pastor and Veronesi [42], Liu and Zhang [43], Tsai [44], and Jurado et al [19] with different research orientations focus on the impact of uncertainty on stock market volatility and find that the inclusion of EPU can enhance the predictability of stock returns.…”

Section: Literature Reviewmentioning

confidence: 99%

“…e null hypothesis of unit root, H 0 : θ � 0, is tested against the nonlinear ESTAR process, H 1 > 0, in equation (12). Because according to Kapetanios et al [67] the null hypothesis cannot be directly tested, a reparameterization of equation ( 12) is suggested by computing a first-order Taylor series approximation to obtain auxiliary regression equation given by…”

Section: Testing For Nonlinear Characteristics Of the Variablesmentioning

confidence: 99%

“…e possible regional integration of the Asian economy and its contagion effects prevailed during the 1997/98 Asian financial crisis that started in ailand and spread across the subregion. erefore, examining the comovement of EPU among the Asian countries is of great importance because of its impact on array of economic activities such as stock markets, housing price, commodity prices, and many more [10][11][12][13][14][15][16][17][18][19][20][21][22].…”

Section: Introductionmentioning

confidence: 99%

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Economic Policy Uncertainty Linkages among Asian Countries: Evidence from Threshold Cointegration Approach

Osei

Djimatey

Adam

2021

Discrete Dynamics in Nature and Society

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This paper employs the threshold cointegration methodology to assess the long- and short-run dynamics of asymmetric adjustment between economic policy uncertainty (EPU) of China-India, China-Japan, China-Korea, India-Japan, India-Korea, and Japan-Korea pairs using monthly EPU data ranging from January 1997 to April 2020. The relationship between the EPU pairs is examined in terms of Engle-Granger and threshold cointegrations. The findings provide evidence of long-run threshold cointegration and that the adjustments towards the long-run equilibrium position are asymmetric in the short run for the China-India and India-Japan EPU pairs in M-TAR specification with nonzero threshold values. Also, the results suggest a unidirectional causal relationship between China-India, China-Japan, and India-Korea EPU pairs in the long and short run using the spectral frequency domain causality approach. However, a bidirectional causal relationship between China-Korea, India-Japan, and Japan-Korea pairs exists in the long and short run. Therefore, the findings provide some clues to economic policymakers within the Asian subregion for possible policy uncertainty synergies and spillovers among the Asian countries.

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Section: Literature Reviewmentioning

confidence: 99%

Section: Testing For Nonlinear Characteristics Of the Variablesmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Economic Policy Uncertainty Linkages among Asian Countries: Evidence from Threshold Cointegration Approach

Osei

Djimatey

Adam

2021

Discrete Dynamics in Nature and Society

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“…Importantly, in the context of the US, the phenomena are also captured by a few studies [14,[21][22][23]27] with conflicting findings. For example, some of them [14,15,21,23,34] found a negative relationship, while others reported no effect [22,27]. The conflicting referred literature on the US [14,15] relies on the classical approach [35] to capture the cointegration relationship.…”

mentioning

confidence: 99%

“…For example, some of them [14,15,21,23,34] found a negative relationship, while others reported no effect [22,27]. The conflicting referred literature on the US [14,15] relies on the classical approach [35] to capture the cointegration relationship. From the symmetry assumption perspective drawn on this approach [35], it follows that an increase in PU will negatively affect the other macroeconomic variables and that a decrease in PU will increase this variable.…”

mentioning

confidence: 99%

US Policy Uncertainty and Stock Market Nexus Revisited through Dynamic ARDL Simulation and Threshold Modelling

et al. 2020

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Since the introduction of the measure of economic policy uncertainty, businesses, policymakers, and academic scholars closely monitor its momentum due to expected economic implications. The US is the world’s top-ranked equity market by size, and prior literature on policy uncertainty and stock prices for the US is conflicting. In this study, we reexamine the policy uncertainty and stock price nexus from the US perspective, using a novel dynamically simulated autoregressive distributed lag setting introduced in 2018, which appears superior to traditional models. The empirical findings document a negative response of stock prices to 10% positive/negative shock in policy uncertainty in the short-run, while in the long-run, an increase in policy uncertainty by 10% reduces the stock prices, which increases in response to a decrease with the same magnitude. Moreover, we empirically identified two significant thresholds: (1) policy score of 4.89 (original score 132.39), which negatively explain stock prices with high magnitude, and (2) policy score 4.48 (original score 87.98), which explains stock prices negatively with a relatively low magnitude, and interestingly, policy changes below the second threshold become irrelevant to explain stock prices in the United States. It is worth noting that all indices are not equally exposed to unfavorable policy changes. The overall findings are robust to the alternative measures of policy uncertainty and stock prices and offer useful policy input. The limitations of the study and future line of research are also highlighted. All in all, the policy uncertainty is an indicator that shall remain ever-important due to its nature and implication on the various sectors of the economy (the equity market in particular).

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Does uncertainty in the banking sector slow down corporate performance?

Huynh

2023

J Corp Accounting Finance

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The paper explores the effects of banking uncertainty on corporate performance. Utilizing data from 2007 to 2022 in Vietnam and a comprehensive methodology to assess the performance of the sampled firms, our analysis reveals a detrimental impact of banking uncertainty on firm performance. Specifically, heightened uncertainty leads to diminished profitability ratios, reduced operational efficiency, constrained growth potential, and a decline in market valuation for firms. Our findings also indicate that firms may accumulate higher levels of liquidity in response to amplified uncertainty. Additionally, the subdued performance of firms attributable to banking uncertainty is more pronounced among those burdened with elevated bank debts. Interestingly, while the average impact of banking uncertainty on firm performance appears to be weak as a whole, this impact becomes notably magnified for firms maintaining greater credit relationships with banks. Our results are robust to different model specifications, variables, and subsamples. Overall, we provide evidence that banking uncertainty has important implications for corporate performance.

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On the effects of policy uncertainty on stock prices

Cited by 26 publications

References 41 publications

Economic Policy Uncertainty Linkages among Asian Countries: Evidence from Threshold Cointegration Approach

Economic Policy Uncertainty Linkages among Asian Countries: Evidence from Threshold Cointegration Approach

US Policy Uncertainty and Stock Market Nexus Revisited through Dynamic ARDL Simulation and Threshold Modelling

Does uncertainty in the banking sector slow down corporate performance?

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