Global uncertainties and stock returns under heterogeneous market conditions: Evidence from wavelet coherence analysis

Abstract

Over the years, the world has faced numerous global uncertainties, each leaving a profound impact on the global economy and the financial market. This has increased the research on how these uncertainties affect various stocks. However, limited attention has been directed toward comprehending the combined influence of geopolitical risk, global policy uncertainty, and infectious disease equity market volatility on heterogeneous stock returns. This study sets out to investigate the impact of geopolitical risk (GPRH), global policy uncertainty (GPU), infectious disease equity market volatility (ID-EMV), and their correlations on stock returns in a heterogeneous market context, employing wavelet coherence analysis. The study's outcomes emphasize the temporal nature of these uncertainties’ effects on financial markets. Furthermore, our research shows that there is a stronger influence on stock returns from various markets when the combined effects of GPU, ID-EMV, and GPRH are taken into account than when the effects are taken into account separately. This implies that times when all of these factors are operating concurrently will see greater fluctuations in markets than times when only one of them acts in the market. The findings of the study provide significant insight into the complex relationship between economic indicators and stock market performance, allowing investors and policymakers to gain a better understanding of the dynamics of global financial markets.