The Role of Economic Uncertainty in UK Stock Returns

Gao, Jun; Zhu, Sheng; O’Sullivan, Niall; Sherman, Meadhbh

doi:10.3390/jrfm12010005

Cited by 17 publications

(12 citation statements)

References 33 publications

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“…The extant literature also reports a negative association between world uncertainty and capital flows (Drobetz et al, 2018; Gulen & Ion, 2016). Many others show that domestic economic uncertainty reduces FDI (Canh et al, 2020; Gao et al, 2019). On the other hand, Canh et al (2020) report that world uncertainty increases FDI.…”

Section: Literature Reviewmentioning

confidence: 99%

The Empirical Determinants of Foreign Direct Investment Episodes

Imran

Rashid

2022

Global Journal of Emerging Market Economies

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This article classifies the extreme gross foreign direct investment (FDI) flow episodes into four types. It empirically investigates the determinants of each type by estimating complementary log-log (Clog–log) and probit regressions for 50 developing economies over the period 1990–2018. We document that domestic GDP growth rate, inflation, institutional quality, and human capital are the major empirical drivers of FDI flows. The world uncertainty index (WUI) is negatively associated with FDI inflows toward developing countries. Moreover, we find that the domestic GDP growth rate is positively associated with the probability of having FDI surge and FDI flight. In contrast, inflation is negatively linked with FDI surge episodes. These findings provide a better understanding of the empirical determinants of FDI flows to and from developing countries. The findings also help to understand the behavior of FDI extreme movements.

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Section: Literature Reviewmentioning

confidence: 99%

The Empirical Determinants of Foreign Direct Investment Episodes

Imran

Rashid

2022

Global Journal of Emerging Market Economies

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“…It is necessary to explain the situation separately. O'Sullivan and Sherman [9] reached the conclusion of which the evidence suggests that economic activity uncertainty and UK economic policy uncertainty have the ability to explain a cross-section of UK stock returns, whereas UK inflation, EU economic policy uncertainty, and US economic policy uncertainty factors are not priced in UK stock market. The conclusion strongly suggests that the UK stock market is quite stable and independent.…”

Section: The United Kingdommentioning

confidence: 99%

The Impacts of Geopolitical Events on the Developed and Developing Stock Markets

Tan¹,

Wang²

2022

Advances in Social Science, Education and Humanities Research

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The geopolitical conflicts/events usually have caused huge fluctuations on the stock market all over the world. Many scholars have studied the impacts that wars or changes of geopolitical relations on the stock markets. However, it is not clear whether the impacts on the developed and developing countries are the same. Therefore, in this article, we conclude and analyse how the stock markets react to geopolitical events respectively from developed and developing countries by reviewing and summarizing several previous 15 studies and looking at the Dow Jones Industrial Average Index and other stock indices. In the research of this paper, it is found that the reaction varies from countries to countries. For the developed countries, the reaction of the markets depends on their extent of participation in geopolitical events. For instance, the United States react much more slightly compared with the European Union. For developing countries, the reaction is closely connected with their regional or national factors, such as the characteristics of the markets or macro-control of the government, resulting in a gentle fluctuation. Generally speaking, the article provides a relatively complete summary for the effects of geopolitical events on the developed and developing stock markets, and suggests a better explanation of the markets' behaviours.

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“…The first method did not find any relationship between stock market returns and PU, while the second method showed a weak bidirectional relationship for many sub-periods. Employing the time-varying parameter factor-augmented vector autoregressive (VAR) model on data from January 1996 to December 2015, Gao, Zhu, O'Sullivan, and Sherman [20] estimated the impact of PU on the UK stock market returns. The study considered both domestic and international economic PU factors.…”

Section: Literature Reviewmentioning

confidence: 99%

“…In addition, this study extends the analysis beyond the DYS-ARDL estimator [1] by using Tong [11] threshold regression Although DYS-ARDL [1] is a powerful tool to capture the dynamic cointegration between an independent variable and dependent variable, and its unique feature automatically generates the simulation-based graph of changes to SP as a result of a certain positive/negative shock in PU, it is beyond its capacity to figure out a certain level (point) where the relationship (magnitude of coefficient) changes. For example, literature shows that the general stock market is linearity correlated with the changes in PU [14][15][16][17][18][19][20][21][22][23][24][25][26][27]. An increase in PU brings a negative influence on SP, in which a decrease translates into a positive change.…”

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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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The Role of Economic Uncertainty in UK Stock Returns

Cited by 17 publications

References 33 publications

The Empirical Determinants of Foreign Direct Investment Episodes

The Empirical Determinants of Foreign Direct Investment Episodes

The Impacts of Geopolitical Events on the Developed and Developing Stock Markets

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

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