Volatility Spillovers between the Global Economy Policy Uncertainty Index and Equity Markets: Evidence from Developed and Emerging Economies

Purpose- In this study, it is aimed to investigate the effects of global uncertainty shocks on the macroeconomic variables of the Turkish economy. Methodology- In the study, the global world uncertainty index (WUI) constructed by Ahir et al. (2022) is used as an indicator of global uncertainty. A structural auto regressive (SVAR) model is established, which includes five variables (global uncertainty indicator, economic growth rate, inflation rate, unemployment rate, and interest rate). In addition, three real variables representing economic activity (real consumption, real investment and real bank loans) are substituted for unemployment rate in the model, respectively. The data set covers the period 2003Q1-2020Q1. Findings- According to the findings of impulse response and variance decomposition analyses, real GDP growth, real consumption growth, real investment growth and real credit growth react negatively and significantly to an increase in global uncertainty. On the other hand, inflation rate, unemployment rate and interest rate respond positively and significantly to an increase in global uncertainty. These results prove that a global uncertainty shock creates the similar effects of a negative supply shock on the Turkish economy. In addition, the robustness of the findings is checked using the global economic policy uncertainty (GEPU) index developed by Baker et al. (2016). Conclusion- In the light of these findings, it can be suggested that the negative effects of global uncertainty shocks on domestic macroeconomic indicators should be mitigated through monetary and fiscal policies. Keywords: Global uncertainty, structural VAR, economic growth, inflation, unemployment JEL Codes: C32, E30, F40

The main goal of this paper is to investigate the predictability of five economic uncertainty indices for oil price volatility in a changing world. We employ the standard predictive regression framework, several model combination approaches, as well as two prevailing model shrinkage methods to evaluate the performances of the uncertainty indices. The empirical results based on simple autoregression models including only one index suggest that global economic policy uncertainty (GEPU) and US equity market volatility (EMV) indices have significant predictive power for crude oil market volatility. In addition, the model combination approaches adopted in this paper can improve slightly the performances of individual autoregressive models. Lastly, the two model shrinkage methods, namely Elastin net and Lasso, outperform other individual AR-type model and combination models in most forecasting cases. Other empirical results based on alternative forecasting methods, estimation window sizes, high/low volatility and economic expansion/recession time periods further make sure the robustness of our major conclusions. The findings in this paper also have several important economic implications for oil investors.

Purpose ― This paper examines the impact of major uncertainty indices and global uncertainty on the volume of Sukuk issuance in Türkiye. Method — The NARDL method is applied to determine the short- and long-term relationships between Türkiye's sukuk issuance and global uncertainty and financial stress indices, capturing both symmetric and asymmetric dimensions.Findings — Although a symmetric relationship exists between Global Economic Policy Uncertainty (GEPU) and Sukuk issuance, the Financial Stress Index (FSI) has no long-term impact on Sukuk issuance. During periods of global uncertainty, sukuk issuances increase, whereas in conditions of less uncertainty, they fall. There is an inverse relationship between Geopolitical Risk (GPR) and Sukuk issuance. Since all factors affect sukuk issuance in the short run, GEPU has the highest impact. Decreases in the GEPU index positively affect sukuk securities and increase their issuance volumes. Therefore, GPR and GEPU indices have asymmetric effects on sukuk issuances in the short and long term.Implication — Evidence suggests that sukuk is more resilient to crises than its conventional equivalents. Sukuks are strategically crucial for portfolios and provide sufficient assurance to reduce risk.Originality — No study has assessed how global financial distress and uncertainty influence Türkiye's sukuk issuance. This study differs from previous studies by focusing on sukuk issuance volumes rather than sukuk yields.

Dynamic dependence of the global Islamic equity index with global conventional equity market indices and risk factors

This paper investigates the effect of domestic and global uncertainty on the volatility of the Mexican peso US dollar exchange rate during the period January 1999 - July 2018. The analysis is performed in two stages. In the first stage, we derive an exchange rate volatility measure by estimating a univariate GARCH(1,1) model. In the second stage, we regress the estimated exchange rate volatility on domestic and global uncertainty proxies, built with data from the survey of professional forecasters conducted monthly by Banco de Mexico since 1999. In order to capture the expectations of a broad set of economic agents, we also include as regressors both the Chicago Board Options Exchange Volatility Index (VIX) and Baker, Bloom and Davis global economic policy uncertainty index (EPU). A trade uncertainty index based on Google trends is incorporated in the model to analyze if uncertainty regarding NAFTA and Mexico’s trade liberalization policies has had an impact on the exchange rate volatility. The price of a barrel of Mexican oil mix is also included since the price volatility of this commodity has been shown to affect the peso US dollar exchange rate volatility. In order to control for the surprise component of macroeconomic data announcements the analysis controls for an inflation surprise and a GDP surprise. Finally, we assess whether the effect of domestic political uncertainty and domestic economic uncertainty on exchange rate volatility is amplified in election and recession periods. The main results show that the domestic political uncertainty measure, the VIX and the global EPU indices are the main drivers of the exchange rate volatility. We also find that in recession periods, higher domestic economic uncertainty is associated with higher exchange rate volatility. These findings are robust to alternative exchange rate volatility proxies and econometric techniques.

We evaluate to what extent the geographical and industry composition of the global real economy corresponds to that of public equity markets. We find that there are substantial differences between both regional and industrial composition of the real economy and equity markets. For example, the US is relatively overrepresented when the value of public equities is compared relative to its share of global GDP. Due to foreign exposures of US-listed companies, the economic exposure to the US of a global equity portfolio is much closer to its GDP than its market capitalization suggests. Similarly, the low share of emerging markets public equities in a global portfolio is somewhat misleading, as the economic exposures of public global equity markets to emerging markets are close to its weight in global GDP. From an industrial perspective, equity markets seem to be substantially overexposed to consumer goods and underexposed to consumer services compared to real economic activity. However, these industrial differences might also be caused by classification differences between economic and financial agencies. Nevertheless, the differences in composition may contribute to the explanation of the empirical disconnect between economic growth and equity returns. It may also help investors to target regions or industries in private equity that are underrepresented in their public equity portfolio.

A global economic policy uncertainty index from principal component analysis

We constructed a new index of global uncertainty using the first principal component of the stock market volatility for the largest 15 economies. We evaluate the impact of global uncertainty on the global economy using the new global database from Global Economic Indicators (DGEI), Federal Reserve Bank of Dallas. Global uncertainty shocks are less frequent than those observed in data on the U.S. economy. Global uncertainty shocks are associated with a sharp decline in global inflation, global growth and in the global interest rate (based on official/policy interest rates set by central banks). Our decomposition of global uncertainty shocks shows that global financial uncertainty shocks are more important than non-financial shocks. Over the period 1981 to 2014 global financial uncertainty forecasts 18.26% and 14.95% of the variation in global growth and global inflation respectively. The non-financial uncertainty shocks have insignificant effects on global growth. The model for global variables shows more protracted and substantial negative effects of uncertainty on growth and inflation than does a panel model estimating associations of local country-level variables. This outcome is reversed for the effect of uncertainty on official interest rate.

Purpose- It can be stated that global uncertainty indices, which were developed to measure the effects of global uncertainties on markets and the economy, may have the potential to affect risk perception and investment strategies in the markets. Determining the direction and intensity of the impact of uncertainty and risks on stock markets has become very important for stock market investors under these conditions. This paper aims to comparatively examine how the Climate Policy Uncertainty Index (CPUI) and Energy Uncertainty Index (EUI), which are relatively newer than global uncertainty indices and have been the subject of fewer studies, affect stock prices in Borsa Istanbul 100 (BIST100) and Standard&Poors 500 (S&P500) stock exchanges, in a developing and developed country stock exchange. Methodology- The short and long-term relationships between global uncertainty indices and stock prices were investigated using the ARDL (Distributed Autoregressive Lag) Bounds Test. ARDL is an approach that has several advantages over classical cointegration methods. Findings- It was determined that CPUI and EUI significantly affected the S&P500 index both in the short and long term, positively and negatively, respectively. For BIST100, this effect was negative but statistically insignificant for both indices in the long-term. Conclusion- This paper has highlighted the impact of climate policy and energy uncertainty indices on stock prices, especially in developed countries. In this context, the study emphasizes that investors and policymakers in these countries, especially those considering investing in developed countries, should consider these uncertainty indices and closely monitor them to reduce risks in their risk assessments and optimize their investment strategies. The paper contributes to the existing literature by improving the understanding of how climate policy uncertainty affects financial markets in developed and developing economies. The findings suggest that investors and policymakers should consider different effects when assessing the financial impacts of climate policy and energy uncertainty. Future research could investigate how firms respond to such uncertainties and the financial impacts of corporate strategies at the sectoral level. Keywords: Uncertainty, climate policy uncertainty, energy uncertainty, stock exchange JEL Codes: C32, G01,G11

I estimate the transmission of large global volatility shocks in international equity markets from the earlier (pre-1914) to the modern era of globalisation. To that end, I identify 43 such shocks over the period 1885-2011, defined as significant increases in unanticipated volatility in US equity markets, which I relate to well-known historical events. My estimates suggest that the response of global equity markets to these shocks in a panel of 16 countries is both statistically significant and large economically. On average, global equity market valuations correct by about 20% in the month when a shock occurs. There is substantial heterogeneity in responses both across countries and time, however, which can be partly explained by differences in global trade integration. I find no evidence that other potential theoretical determinants, such as output composition, country fundamentals or global policy responses matter, by contrast. These results shed light on a neglected aspect of globalisation, which creates opportunities but also heightens the exposure of economies to acute surges in global uncertainty and risk aversion.

I estimate the transmission of large global volatility shocks in international equity markets from the earlier (pre-1914) to the modern era of globalisation. To that end, I identify 43 such shocks over the period 1885-2011, defined as significant increases in unanticipated volatility in US equity markets, which I relate to well-known historical events. My estimates suggest that the response of global equity markets to these shocks in a panel of 16 countries is both statistically significant and large economically. On average, global equity market valuations correct by about 20% in the month when a shock occurs. There is substantial heterogeneity in responses both across countries and time, however, which can be partly explained by differences in global trade integration. I find no evidence that other potential theoretical determinants, such as output composition, country fundamentals or global policy responses matter, by contrast. These results shed light on a neglected aspect of globalisation, which creates opportunities but also heightens the exposure of economies to acute surges in global uncertainty and risk aversion.

This paper examines how global uncertainty and domestic shocks (domestic uncertainty) affect macroeconomic performance, such as household consumption expenditure, gross fixed capital formation, and goods and services exports, in Indonesia, Malaysia, the Philippines, and Thailand. The Global Economic Policy Uncertainty Index (GEPUI) is used for the global uncertainty measure, and the difference between the growth rate of original GDP series and their trend is considered a proxy of domestic shocks in this paper. According to the empirical analysis on the basis of time-series data, our interesting finding is that while negative domestic shocks generally tend to decrease macroeconomic performance in the aforementioned countries, increased global uncertainty has an adverse effect on growth of goods and services exports solely in Malaysia. We also conjectures this reason from the fact that the export structure of Malaysia depends heavily upon electrical machinery, apparatus, and appliances (i.e. semiconductor devices and integrated circuits) production which is incorporated deeply into production networks developed in the world.

The current state of Asia-Pacific stock exchanges: A critical review of market design

Green markets integration in different time scales: A regional analysis

As economies become increasingly interconnected, individual economies are at risk of shocks from external uncertainties ranging from fluctuations in climate regulations to geopolitical conflicts and international economic policies.The purpose of the study is to investigate the time-varying correlation between global uncertainties (e. g., global economic policy uncertainty, climate policy uncertainty and geopolitical risk) and economic activity in a developing economy using a dynamic conditional correlation generalized autoregressive conditional heteroskedasticity (GARCH) model.The relevance of the research lies in the increasing interconnectedness of global economies and the subsequent exposure of individual economies to external shocks.The scientific novelty is hinged on the study being among the first to study the relationship in Ghana. Using monthly data for the 2002–2022 period for Ghana, we estimate a multivariate GARCH model.The results of the study indicate that climate policy uncertainty and global economic policy uncertainty are mean reverting, implying that the volatility of the variables decay slowly and persists for a longer time such that the conditional variance will eventually return to its long-term average level after being disturbed by shocks. Global uncertainties over time are strongly negatively correlated with economic activity and produce significant spikes, especially during periods of major world events.The study recommends that policymakers need to consider the prolonged impact of global uncertainties on economic performance when designing economic policies and interventions. The significant spikes during major global events highlight the importance of crisis management and preparedness in maintaining economic stability during periods of heightened uncertainty.