Economic Policy Uncertainty Index Research Articles

Asymmetric causality of economic policy uncertainty and oil volatility index on time-varying nexus of the clean energy, carbon and green bond

Vigorously developing the clean energy industry, improving the carbon allowance trading scheme, and issuing green bonds can effectively reduce emissions. To this end, this study aims to investigate the time-varying connections among clean energy, carbon, and green bonds through the DCC-MIDAS model, thus providing a bird's-eye view of their dynamic nexus. A non-parametric causality-in-quantile method is also employed to adequately capture the asymmetric causation of economic policy uncertainty (EPU) and the oil volatility index (OVX) on cross-asset correlations under different market conditions. The primary results imply complicated links among these three assets, with alternating positive and negative trends throughout the sample period. Notably, turbulence in financial markets can exacerbate network connectivity, particularly during the COVID-19 pandemic. Moreover, EPU and OVX can serve as strong predictors across various distributions of cross-market connections, which indicates that co-movement between assets is vulnerable to exogenous risks, especially under normal market conditions. Our findings have broader implications for market participants and policymakers.

Economic Policy Uncertainty, Investor Sentiment, and Stock Price Synchronisation: Evidence from China

This paper explores the general decision mechanism of stock price synchronicity through in-depth research on the two main viewpoints of information efficiency view and irrational behaviour view. On this basis, we explore the effect of China’s economic policy uncertainty gradually on the synchronisation of stock prices and provide a reasonable explanation for it. Based on the China Economic Policy Uncertainty Index developed by Baker et al., this paper takes China’s A-share listed firms from 2010 to 2019 as the primary sample and tests the effect of China’s economic policy uncertainty on the synchronicity of stock prices by constructing a comprehensive mediation effect test procedure. The fundamental effect and its internal mechanism of action have been supplemented and verified from investor sentiment. Strengthening the research on economic policy uncertainty and stock price synchronisation may deeply explore the internal mechanism of the listed firms’ stock price changes, help in improving the information production function and information transmission function of the securities market, help in improving the resource allocation capacity of the entire capital market, and then promote the long-term healthy development of China’s capital market. The main findings of this paper are as follows: (1) in China’s stock market, which is driven by noise, the increase of economic policy uncertainty will significantly reduce the synchronisation of stock prices; (2) increased uncertainty about China’s economic policy will fuel the investor sentiment and reduce stock price synchronicity, with investor sentiment playing an intermediary role.

Geopolitical risks, uncertainty, and stock market performance

This paper analyses the impact of geopolitical risks and economic policy uncertainty on stock returns. It uses an unbalanced panel dataset of monthly observations for 22 countries for the period 1985–2020. It controls for a set of macroeconomic and market structure variables while also taking into consideration the potential effects of the 2007–2009 financial crisis. This paper shows that the impact of geopolitical risks is negative and statistically significant. The economic interpretation of our main results is that a one-unit standard deviation increase in geopolitical risks decreases stock returns by 10.53–42.14% of its sample mean. For comparison, this paper uses alternatively the global economic policy uncertainty index and the economic policy uncertainty country index, and also finds a statistically significant negative relationship although it is weaker in the latter case.

Spillover Network among Economic Sentiment and Economic Policy Uncertainty in Europe

We explore the directional spillover network among economic sentiment indicators and the economic policy uncertainty (EPU) index from Europe. We derive our results by fitting the directional spillover index approach to the monthly frequency data of eleven European countries, economic sentiment indicators and the European EPU index, spanning from 1 January 1987, to 1 February 2019. The empirical results indicate that the economic sentiment indicators of the largest European economies (Germany, France, and Italy) spillover with each other the most. The economic sentiment indicators of Germany and France most strongly influence the EU and Euro area economic sentiment indicators. The economic sentiment indicators of France and Italy have the most influence on the European EPU index, while the latter has the strongest influence on the economic sentiment indicators of Germany and France.

Research on the Impact of Economic Policy Uncertainty on China's ICT Service Export

In recent years, economic policy uncertainty has been a hot topic in the world, and the development level of service trade is one of the symbols to measure a country's economic strength. Nowadays, the world economy is transforming to the globalization of digital economy, in which information and communication technology (ICT) plays an important role in the process of digital development. Taking service trade as the starting point, using the economic policy uncertainty index and taking the data of China's ICT service exports from 2001 to 2019 as a sample, this paper studies the impact of economic policy uncertainty on China's ICT service exports. The study found that China's economic policy uncertainty is conducive to the export of ICT services, while the global economic policy uncertainty has a restraining effect on it. Based on this, this paper puts forward policy suggestions on China's ICT service trade from the perspective of strengthening multilateral cooperation and increasing policy support of exporting countries.

Economic policy uncertainty and stock market sector time-varying spillover effect: Evidence from China

This paper investigates the volatility spillover effect among the Chinese economic policy uncertainty index, stock markets, gold and oil by employing the time-varying parameter vector autoregressive (TVP-VAR) model. Three main results are obtained. Firstly, the optional consumption, industry, public utility and financial sectors are systemically important during the sample period. Secondly, among the four policy uncertainties, the uncertainty of fiscal policy and trade policy contributes more to the spillover effect, while the uncertainty of monetary policy and exchange rate policy contributes less to the spillover effect. Thirdly, during COVID-19, oil spillovers from other sources dropped rapidly to a very low point, it also had a significant impact on the net volatility spillover of the stock market. This paper can provide policy implication for decision-makers and reasonable risk aversion methods for investors.

Predicting equity premium out-of-sample by conditioning on newspaper-based uncertainty measures: A comparative study

In finance, the use of newspaper-based uncertainty measures has grown exponentially in recent years. For instance, a growing number of researchers have used the newspaper-based U.S. economic policy uncertainty (EPU) index suggested in Baker et al. (2016) as a predictor in their model to forecast the variable of interest out-of-sample. Likewise, inspired by the approach suggested in Baker et al. (2016), several other newspaper-based uncertainty measures have been introduced, such as indices measuring geopolitical risk (GPR) and monetary policy uncertainty (MPU). This study evaluates the relative out-of-sample predictive power afforded by more than fifty different newspaper-based uncertainty measures with regards to predicting excess returns on the S&P 500 index one-month ahead using data from 1985m1 through 2020m12. Our predictive model accounts for salient data features, namely, predictor endogeneity and persistence. Furthermore, we evaluate the evidence of conditional as well unconditional predictive ability as outlined in Giacomini and White (2006), and also explore whether any identified level of gains from a statistical viewpoint lead to gains from an economic viewpoint. We find that newspaper-based uncertainty measures linked with certain components of the equity market volatility (EMV) tracker suggested in Baker et al. (2019) help improve the accuracy of one month ahead point predictions relative to the benchmark the most. In contrast, EPU, GPR and MPU indices, which are more frequently used by researchers are much less successful.

METODE ARCH/GARCH UNTUK MEMPREDIKSI HUBUNGAN ECONOMIC UNCERTAINTY AKIBAT PANDEMI COVID 19 DAN VOLATILITAS SAHAM

The capital markets of the United States and Indonesia experienced stock market crashes in which stock prices fell sharply and several stock indexes were forced to close prematurely. This study aims to determine the effect of economic uncertainty on the market reaction when the COVID-19 outbreak hit Indonesia. This research is a quantitative research with an event study approach. The time period starts from February to March 2020. The data is time series obtained from www.policyuncertainty.com to calculate the Economic Policy Uncertainty (EPU) Index as a measure of the economic uncertainty variable. Meanwhile, stock returns used the closing stock prices of JCI from February to March 2020 to measure volatility. The data were processed using the Unit Root Test- Augmented Dickey-Fuller to test the stationary and the ARCH/GARCH method to test the effect of the variable. The results show that EPU has no effect on stock volatility in Indonesia in the short term, but has an effect in the long term. This research contributes to the development of the event study literature in the behavior of investors in the capital market as a result of unpredictable events. As well as responses to policies formulated by stakeholders to address future economic uncertainties..

Climate policy uncertainty and world renewable energy index volatility forecasting

Since the signing of the Paris Agreement in 2015, the global energy structure has undergone unprecedented adjustment, and renewable energy has ushered in a new period of development opportunities. From the perspective of energy stability and sustainable development, this paper uses the generalized autoregression-conditional heteroscedasticity mixed data sampling model (GARCH-MIDAS) to explore the predictive power of climate policy uncertainty (CPU) on the index volatility of renewable energy. At the same time, eight uncertainty indices, including the economic policy uncertainty index and geopolitical risk index variable, are introduced to discuss the impact on the volatility of renewable energy. Furthermore, the out-of-sample prediction accuracy of each model is tested by the out-of-sample ROS2, Model Confidence Set (MCS), direction-of-change (DoC) and other evaluation methods. Climate policy exhibits a superior ability to predict renewable energy volatility, offers a new perspective for the accurate prediction of renewable energy volatility, and provides a reliable guarantee for the sustainable development of the energy market and financial market.

A Study on the Hedging Function of Gold in the Light of Economic Policy Uncertainty.

This paper focuses on the empirical analysis of the closing price of gold, the SSE Index, and the China Economic Policy Uncertainty Index by means of a GARCH model to study the main characteristics of their movements. The series of gold closing price returns are analysed for linkage using the current mainstream VAR model, so as to analyse and compare the hedging function of gold. The article selects the closing price of gold, the SSE Index, and the China News-Based EPU from June 2005 to June 2019 as the sample series for the study. The background of the study and the theoretical knowledge of VAR and GARCH models are first introduced, and then, the GARCH family model and statistical analysis methods are used to derive the respective movements of the log returns of gold closing price, SSE index log returns, and China News-Based EPU log volatilities. The results show that the movements of the closing price of gold, the SSE Index, and the China News-Based EPU have the characteristics of financial assets in general, such as spikes and thick tails, agglomeration, and leverage effects. For the empirical study of the linkage between the three, this paper first considers only three variables, namely gold closing price, SSE index, and EPU. In order to investigate whether there is a co-integration relationship between them, a vector autoregressive model is established, followed by the corresponding impulse response analysis and variance decomposition. The analysis of the linkage between the closing price of gold, the SSE index, and the EPU concluded that changes in the EPU had a greater impact on the changes in the closing price of gold, while changes in the SSE index had a smaller impact on the changes in the closing price of gold. Finally, the conclusion of this article is some advice to investors on gold investment.

Economic policy uncertainty and institutional investment returns: The case of New Zealand

This study introduces a monthly news-based economic policy uncertainty index for New Zealand (NZ EPU) and examines the pricing implications of NZ EPU on a large sample of institutional investors. We find that NZ EPU is a priced and an undiversifiable risk factor that commands a statistically and economically significant risk premium of 6.23% on annual basis in the cross-section of managed fund returns. Interestingly, despite the fact that about 70% of the funds in our sample adopt a global focus, our tests show that local uncertainty plays a more dominant role as a driver of institutional investment returns compared to global policy uncertainty. We show that funds with lower (higher) sensitivity to NZ EPU index generate significantly higher (lower) subsequent excess returns, even after controlling for the well-established systematic risk factors and fund level determinants. Further analysis suggests that NZ EPU betas are highly persistent and can predict short- and long-term returns up to 12 months, implying that active fund managers can devise an active timing strategy by tracking changes in the NZ EPU index. Our findings present important implications for policy makers and investors as the proposed NZ EPU index is able to capture both global and local shocks, while it aligns well with the overall trends in the business outlook surveys.

The Economic Policy Uncertainty and Its Effect on Sustainable Investment: A Panel ARDL Approach

This study examines the effect of economic policy uncertainty (EPU) on sustainable investment returns by using panel data of stock market returns and the EPU index from twelve countries for the period from April 2015 to December 2020. In addition, precious metal prices, energy prices, and cryptocurrency prices are used as control variables. To do so, we investigate the impact of EPU, gold prices, oil prices, and Bitcoin prices on stock market returns by using the panel autoregressive distributed lag (ARDL) model to examine both the long-run correlation and short-run effect. Our findings show that EPU, gold prices, oil prices, and Bitcoin prices have a time-varying significant impact on sustainable stock market returns. We discovered that EPU has a significantly negative impact on the returns of the sustainable stocks in the markets over the long run. In contrast, the rise of the gold price, oil price, and Bitcoin price have a significantly positive impact on the returns of the sustainable stocks in the twelve sustainable markets in the long run. On the other hand, EPU in Singapore, Spain, the Netherlands, and Russia has a significant short-run impact on market returns in each country. Based on the findings, managers and investors in the sustainable stock markets are highly recommended to pay more attention to the volatility of EPU, gold prices, oil prices, and Bitcoin prices in the short run to control the risk of returns in the sustainable stock market. Furthermore, policymakers must closely monitor the movement of the EPU index, as it is a major driver of sustainable stock market returns.

Revisiting the relationship between economic uncertainty and suicide: An alternative approach

Previous research provides evidence that economic uncertainty is powerful enough to precipitate suicide. This study examines whether the relationship between economic uncertainty and suicide in the US is (i) context dependent and (ii) asymmetric. To answer these questions, we link US monthly total- age- and gender-specific suicide rates to the US Economic Policy Uncertainty index between 1999 and 2019, controlling for month fixed effects, year fixed effects and unemployment rates. We find that the relationship between economic uncertainty and the suicide rates of males in their mid-career (aged 25–54) and late career (aged 55–64) is context dependent. Our results show that absolute monthly changes in economic uncertainty have no effect on suicide rates of males aged 25–54 and 55–64, whereas when these changes are unexpected – departing from the economic uncertainty regime during which they occur – they precipitate the suicide of these age- and gender-specific groups. Additionally, our findings provide evidence of the presence of negativity bias in these relationships. We show that extreme unexpected increases in economic uncertainty induce suicide of males aged 25–54 and 55–64, while extreme unexpected decreases in economic uncertainty do not significantly decrease suicide rates of these age- and gender-specific groups. Females, with the exception of those aged 65 plus, are perceived to be predominantly insulated from changes in economic uncertainty. Our results suggest that females aged 65 plus are particularly affected by extreme unexpected increases in economic uncertainty, suggesting that the relationship for females aged 65 plus is context dependent and exhibits negativity bias.

Analyzing the degree of persistence of economic policy uncertainty using linear and non‐linear fourier quantile unit root tests

AbstractThis research analyzes the degree of persistence of the economic policy uncertainty (EPU) index for 23 countries using two novel quantile unit root tests that allow for smooth breaks and quantile‐specific stochastic behavior. After executing conventional linear and non‐linear unit root tests, we find scant evidence in favor of stationarity of the EPU indices, yet applying the quantile unit root test with smooth breaks presents more evidence in favor of stationarity. Our results indicate that the EPU index series of these countries respond differently to positive shocks, which may result in a jump in uncertainty. For some countries like the UK, positive shocks to EPU have transitory effects and disappear in the short run, whereas for 10 countries such as China, the positive shocks have long lasting (persistence) effects. Our results offer important policy implications.

Economic policy uncertainty: The probability and duration of economic recessions in major European Union countries

We study the impact of economic policy uncertainty on the probability and duration of economic recessions in 10 major European Union countries over the period 1987Q2–2021Q1. We find that economic policy uncertainty results in not only a higher probability of economic recessions but also longer recessions. Specifically, with a one-standard-deviation increase in the economic policy uncertainty index, on average the probability of an economic recession goes up by 14%, and the probability of an economic recession ending reduces by 27%, controlling for general economic uncertainty and economic and political factors. Moreover, we find that fiscal expansion, adequate political support, and left-wing governments’ policies are important to alleviate the effects of policy uncertainty on the likelihood of economic recessions.

Do stock market fear and economic policy uncertainty co-move with COVID-19 fear? Evidence from the US and UK

PurposeThe purpose of the paper is to investigate co-movement of major implied volatility indices and economic policy uncertainty (EPU) indices with both the health-based fear index and market-based fear index of COVID-19 for the USA and the UK to help investors and portfolio managers in their informed investment decisions during times of infectious disease spread.Design/methodology/approachThis study uses wavelet coherence approach because it allows to observe lead–lag nonlinear relationship between two time-series variables and captures the heterogeneous perceptions of investors across time and frequency. The daily data used in this study about the USA and the UK covers major implied volatility indices, EPU, health-based fear index and market-based fear index of COVID-19 for both the first and second waves of COVID-19 pandemic over the period from March 3, 2020 to February 12, 2021.FindingsThe results document a strong positive co-movement between implied volatility indices and two proxies of the COVID-19 fear. However, in all the cases, the infectious disease equity market volatility index (IDEMVI), the COVID-19 proxy, is more representative of the stock market and exhibits a stronger positive co-movement with volatility indices than the COVID-19 fear index (C19FI). This study also finds that the UK’s implied volatility index weakly co-moves with the C19FI compared to the USA. The results show that EPU indices of both the USA and the UK exhibit a weak or no correlation with the C19FI. However, this study finds a significant and positive co-movement of EPU indices with IDEMVI over the short horizon and most of the sampling period with the leading effect of IDEMVI. This study’s robustness analysis using partial wavelet coherence provides further strengths to the findings.Research limitations/implicationsThe investment decisions and risk management of investors and portfolio managers in financial markets are affected by the new information on volatility and EPU. The findings provide insights to equity investors and portfolio managers to improve their risk management practices by incorporating how health-related risks such as COVID-19 pandemic can contribute to the market volatility and economic risks. The results are beneficial for long-term equity investors, as their investments are affected by contributing factors to the volatility in US and UK’s stock markets.Originality/valueThis study adds following promising values to the existing literature. First, the results complement the existing literature (Rubbaniy et al., 2021c) in documenting that type of COVID-19 proxy matters in explaining the volatility (EPU) relationships in financial markets, where market perceived fear of COVID-19 is appeared to be more pronounced than health-based fear of COVID-19. Second, the use of wavelet coherence approach allows us to observe lead–lag relationship between the selected variables, which captures the heterogeneous perceptions of investors across time and frequency and have important insights for the investors and portfolio managers. Finally, this study uses the improved data of COVID-19, stock market volatility and EPU compared to the existing studies (Sharif et al., 2020), which are too early to capture the effects of exponential spread of COVID-19 in the USA and the UK after March 2020.

Uncertainty Volatility, Investment, And Cash Holding In ASEAN Countries

This study aims to show the effect of uncertainty on firms’ corporate investment and cash holding in five ASEAN countries, namely Malaysia, Indonesia, Singapore, Thailand, and Vietnam. The study was conducted using data from non-financial public listed firms in these five ASEAN countries during the 2006 to 2020 period. The uncertainty volatility is measured using the standard deviation of the economic policy uncertainty index. The results of this study find that uncertainty volatility increases corporate investment and decreases corporate cash holding. This result indicates that high uncertainty economic condition cause firms to invest to reduce information asymmetry by giving signals to external investors through investment, and as result, it reduces the corporate cash holdings. Moreover, we also find that uncertainty volatility is more economically significant than Economic Policy Uncertainty it self. It is possible that uncertainty volatility can better capture the real uncertain condition in the economy.

A Twitter-Based Economic Policy Uncertainty Index: Expert Opinion and Financial Market Dynamics in an Emerging Market Economy

In this paper, we construct a Twitter-based high-frequency Economic Policy Uncertainty (TEPU) index built on a select set of Twitter user accounts whose tweets are considered to reflect expert opinion on the topic. We study the relationship between the TEPU index and a set of key financial indicators for tracking financial developments in Turkey over the sample period 2013–2021. Based on the results from a vector autoregressive analysis, we find evidence that changes in expert opinion described by fluctuations in the TEPU index interact with fluctuations in financial indicators such as the exchange rate and the stock market index to capture information about high frequency events during our sample period. Second, fluctuations in the TEPU index emerge as a key indicator that helps to predict the country risk premium measured by the CDS spread. We also find evidence that the conditional volatility of the different series reflects salient events that occurred over our sample period.

Global economic uncertainty and suicide: Worldwide evidence

Economic uncertainty is a driver of the business cycle. Its leading properties make it a key advanced indicator to assess the impact of socioeconomic factors on suicide for prevention purposes. This paper evaluates the effect of economic uncertainty on suicide rates worldwide. Uncertainty is gauged by a global economic policy uncertainty index. Suicide rates from 183 countries between 2000 and 2019 are matched to annual economic uncertainty, controlling for unemployment and economic growth in a fixed-effects panel model. Overall, the analysis suggests that increases in lagged economic uncertainty, as well as in unemployment and economic growth, may lead to an increased risk of suicide. When replicating the experiment for different regions of the world, the greatest impact of an increase in economic uncertainty can be found in Africa and the Middle East. Given the anticipatory nature of economic uncertainty regarding the evolution of economies, and its relationship with suicide rates, the results highlight the usefulness of uncertainty indicators as tools for the early detection of periods of increased suicide risk and the design of suicide prevention strategies.

Policy Uncertainty, Financialization and Enterprise Technological Innovation: A Way Forward Towards Economic Development

Technological innovation is the core factor for enterprises to maintain competitiveness. This paper aims to investigate how policy uncertainty affect enterprises’ innovation. On the basis of theoretical analysis, this study selects data from 2008–2017- and a share of non-financial listed companies as the research sample. Using patent data of listed companies and China’s economic policy uncertainty (EPU) index, the study examines the impact of EPU on enterprise innovation. In addition, the regulatory effect of enterprise financialization has been investigated. The results show that the EPU can promote the quantity growth of enterprise innovation but inhibit the improvement of enterprise innovation quality. The impact of EPU on enterprise innovation will be affected by enterprise ownership, financing constraint level, life cycle, regional administrative level and regional economic level. Furthermore, enterprise financialization shows a negative regulatory effect in the process of EPU affecting enterprise innovation. This study provides policy enlightenment for reasonably formulating economic policies and promoting enterprise financialization, so as to effectively improve enterprise innovation ability and economic development.