Predictive Power of us Monetary Policy Uncertainty Shock on Stock Returns in Australia and New Zealand

Cai, Yifei

doi:10.1111/1467-8454.12130

Cited by 11 publications

(6 citation statements)

References 52 publications

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“…As a result, future T&lSR are likely to be lower after periods of higher domestic and European economic policy uncertainty. This finding is consistent with Cai (2018), who pointed out that US monetary policy uncertainty negatively predicted Australian stock returns for a few months after the European debt crisis. However, as the forecast horizon extended to one year (12 months), the predictive power of the independent variables turns out to be irrelevant.…”

Section: Resultssupporting

confidence: 92%

Impact of economic sentiment and economic policy uncertainty on travel and leisure stock return

Hadood

Irani²

2020

JHTI

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PurposeThis paper considers the role of economic sentiment and economic policy uncertainty (both domestic and European) in explaining the changes in the contemporaneous and future travel and leisure stock index returns in top European Union (EU) tourism destinations, namely, in France, Germany, Spain and the UK.Design/methodology/approachThe authors conducted the ordinary least square (OLS) regression estimations to investigate the impact of changes in economic sentiment and economic policy uncertainty on travel and leisure stock returns. Furthermore, the authors used predictive regressions to determine whether economic sentiment and economic policy uncertainty are useful predictors over the short- or medium-term for travel and leisure stock returns.FindingsEmpirical results revealed that, in France and Spain, the changes in regional economic sentiments predominantly and positively affected travel and leisure stock index returns. Also, results indicated that changes in European economic sentiment have a strong positive effect on the future travel and leisure stock returns in Spain and the UK over the short run, while in France, changes in European economic policy uncertainty have a weak negative effect on the future travel and leisure stock returns over the medium-term.Research limitations/implicationsThis paper provides valuable practical implications for investors who trade travel and leisure stocks. Traders can use economic sentiment and economic policy uncertainty to establish arbitrageur strategies.Originality/valueThis study is the first to examine the effects of economic sentiment and economic policy uncertainty (both domestic and European) on contemporaneous and future travel and leisure stock returns in a top European tourism destination.

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Section: Resultssupporting

confidence: 92%

Impact of economic sentiment and economic policy uncertainty on travel and leisure stock return

Hadood

Irani²

2020

JHTI

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“…They do this for everyday issues of the Washington Post, the Wall Street Journal and the New York Times. This index has been used as a proxy for MPU by Cai (2018) Under this basis, there are two MPU indices for USA constructed by Baker et al (2016). One is built using hundreds of daily newspapers covered by Access World News, and the other is based on ten major newspapers, such as USA Today, the Miami Herald, the Chicago Tribune, the Washington Post, the Los Angeles Times, the Boston Globe, the San Francisco Chronicle, the Dallas Morning News, the Houston Chronicle and the Wall Street Journal.…”

Section: Methodsmentioning

confidence: 99%

“…Although extensive literature has analysed the impact of EPU on stock markets, few studies have specifically related MPU to stock markets. Studies such as the one by Bernanke and Kuttner (2005) have shown that unforeseen changes by the Fed in the general fund rate are responsible for a small part of the general variability of stock prices, showing that a hypothetical unanticipated 25-basis-point cut in the rate would be related to a 1% increase in stock indices (Cai, 2018). This approach is supported by Sinha (2016), who argues that a greater uncertainty regarding interest rates has significant implications for economic agents' decision-making, acting as a negative shock in the demand.…”

Section: Theoretical Frameworkmentioning

confidence: 99%

Monetary policy uncertainty and stock market returns: influence of limits to arbitrage and the economic cycle

Paule-Vianez

Prado‐Román

Gómez-Martínez

2020

SEF

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Purpose This paper aims to examine the impact that monetary policy uncertainty (MPU) has on stock market returns by taking into account limits to arbitrage and the economic cycle. Design/methodology/approach Using four news-based MPU measures, regression models have been applied in this study over a sample period from January 1985 to March 2020. The limits to arbitrage have been considered by taking Russell 1000 Value, Russell 1000 Growth, Russell 2000 Value and Russell 2000 Growth indices, and business cycles were established following the National Bureau of Economic Research. Findings A negative MPU impact on stock returns has been found. In particular, the most subjective and difficult to arbitrate stocks have been more sensitive to MPU. However, it could not be concluded that MPU has a greater or lesser impact on stock returns depending on the economic cycle. Practical implications The findings obtained are particularly useful for monetary policymakers showing the importance and need for greater control over the transparency of their decisions to maintain the stability of financial markets. The findings obtained are also useful for investors when selecting their investment assets at times of the highest MPU. Originality/value To the best of the authors’ knowledge, this is one of the few studies investigating the effect of MPU on stock market returns, and the first to analyse this relationship taking into account the economic cycle and limits to arbitrage.

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“…Recently, it has been found that the spillover effect of MPU has the nonlinear time-varying feature. For instance, Cai (2018) pointed out the nonlinear spillover effect of US MPU on return on stocks in Australia and New Zealand.…”

Section: Literature Reviewmentioning

confidence: 99%

Nonlinear Spillover Effect of Us Monetary Policy Uncertainty on China’s Systematic Financial Risks

Ouyang

Wei

Васа

2022

Journal of Business Economics and Management

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Monetary policy uncertainty (MPU) not only imposes a great impact on the systematic financial risks of a country but also generates a significant spillover effect on countries having close economic exchanges with the former under the background of global economic integration. With the daily return rates of 64 listed financial companies in China from February 2006 to September 2020 used as the samples, China’s systematic financial risks were measured in this research by using long-run marginal expected shortfall (LRMES). On this basis, an FAVAR model with time-varying parameters was constructed to empirically investigate the spillover effect of US MPU on China’s systematic financial risks and its main transmission channels. Results showed that within the sample period (February 2006 – September 2020), US MPU generated a significant positive spillover effect on China’s systematic financial risks, namely, China’s systematic financial risks would be aggravated if the level of US MPU was elevated. From different time intervals, the spillover level was particularly high during global financial crises and global COVID-19 pandemic, indicating that the spillover effect of MPU is nonlinear and closely related to global major sudden risk events. Through the further research, it is found that this effect is mainly transmitted through short-term capital flow, interest rate, and economic uncertainty-induced channels, among which the short-term capital flow is the most important.

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Predictive Power of us Monetary Policy Uncertainty Shock on Stock Returns in Australia and New Zealand

Cited by 11 publications

References 52 publications

Impact of economic sentiment and economic policy uncertainty on travel and leisure stock return

Impact of economic sentiment and economic policy uncertainty on travel and leisure stock return

Monetary policy uncertainty and stock market returns: influence of limits to arbitrage and the economic cycle

Nonlinear Spillover Effect of Us Monetary Policy Uncertainty on China’s Systematic Financial Risks

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