Research Article
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THE RELATIONSHIP BETWEEN ECONOMIC POLICY UNCERTAINTY AND G7 STOCK MARKETS

Year 2020, Volume , Issue 20, 353 - 372, 23.10.2020
https://doi.org/10.29029/busbed.732124

Abstract

The concept of uncertainty, which emerges in situations such as war, financial crises, and political elections, has a great influence on the decisions of economic units. An environment of uncertainty negatively affects investors' confidence in the economy. One of the areas where the negative effects of uncertainty can be observed is country stock markets. This study explores the relationship between the economic policy uncertainty index and stock exchange in G7 developed markets. For this purpose, the monthly period from 1997 to 2019 is examined with second-generation panel data methodologies to consider the possible cross-sectional dependence among observed markets. In estimating the long-term effect of the economic policy uncertainty on the G7 country stock market indices, the Common Correlated Effect (CCE) estimator, which considers the cross-sectional dependency observed between countries. The causality relationship between the economic policy uncertainty index and the G7 country stock market indexes is examined with the panel causality test, which considers the cross-section dependency and heterogeneity. The results show that economic policy uncertainty negatively affects the G7 stock market indices in the long term. On the other hand, the panel causality test results reveal that there is bidirectional causality between economic policy uncertainty and financial markets.

References

  • Akkuş, A. G. D. Ö. (2017). Ekonomik Politika Belirsizliği ve Politik İstikrarsızlığın Büyüme Üzerindeki Etkisi. Anadolu Üniversitesi Sosyal Bilimler Dergisi, 17(3), 27–42.
  • Alqahtani, A. ve Martinez, M. (2020). US Economic Policy Uncertainty and GCC Stock Market. Asia-Pacific Financial Markets, 1–11.
  • Alqahtani, A. ve Taillard, M. (2019). The Impact of US Economic Policy Uncertainty Shock on GCC Stock Market Performance. Asian Journal of Law and Economics, 10(2).
  • Al-Thaqeb, S. A. ve Algharabali, B. G. (2019). Economic policy uncertainty: A literature review. The Journal of Economic Asymmetries, 20, e00133. doi:10.1016/j.jeca.2019.e00133
  • Arbatli, E. C., Davis, S. J., Ito, A. ve Miake, N. (2017). Policy uncertainty in Japan. National Bureau of Economic Research. Armelius, H., Hull, I. ve Köhler, H. S. (2017). The timing of uncertainty shocks in a small open economy. Economics Letters, 155, 31–34.
  • Arouri, M. ve Roubaud, D. (2016). On the determinants of stock market dynamics in emerging countries: The role of economic policy uncertainty in China and India. Economics Bulletin, 36(2), 760–770.
  • Baker, S., Bloom, N. ve Davis, S. J. (2012). Measuring Economic Policy Uncertainty. University of Chicago and Stanford University.
  • Baker, S. R., Bloom, N. ve Davis, S. J. (2016). Measuring economic policy uncertainty. The quarterly journal of economics, 131(4), 1593–1636.
  • Breusch, T. S. ve Pagan, A. R. (1980). The Lagrange multiplier test and its applications to model specification in econometrics. The review of economic studies, 47(1), 239–253.
  • Brogaard, J. ve Detzel, A. (2015). The asset-pricing implications of government economic policy uncertainty. Management Science, 61(1), 3–18.
  • Cerda, R., Silva, A. ve Valente, J. T. (2016). Economic policy uncertainty indices for Chile. Economic Policy Uncertainty working paper.
  • Chen, J., Jiang, F. ve Tong, G. (2017). Economic policy uncertainty in China and stock market expected returns. Accounting & Finance, 57(5), 1265–1286.
  • Chiang, T. C. (2019). Economic policy uncertainty, risk and stock returns: Evidence from G7 stock markets. Finance Research Letters, 29(C), 41–49.
  • Christou, C., Cunado, J., Gupta, R. ve Hassapis, C. (2017). Economic policy uncertainty and stock market returns in PacificRim countries: Evidence based on a Bayesian panel VAR model. Journal of Multinational Financial Management, 40, 92–102.
  • Dakhlaoui, I. ve Aloui, C. (2016). The interactive relationship between the US economic policy uncertainty and BRIC stock markets. International Economics, 146, 141–157.
  • Davis, S. J. (2016). An index of global economic policy uncertainty. National Bureau of Economic Research. Dumitrescu, E.-I. ve Hurlin, C. (2012). Testing for Granger non-causality in heterogeneous panels. Economic modelling, 29(4), 1450–1460.
  • Fang, L., Yu, H. ve Li, L. (2017). The effect of economic policy uncertainty on the long-term correlation between US stock and bond markets. Economic Modelling, 66, 139–145.
  • Ghirelli, C., Pérez, J. J. ve Urtasun, A. (2019). A new economic policy uncertainty index for Spain. Economics Letters, 182, 64–67.
  • Gil, M. ve Silva, D. (2018). Economic Policy Uncertainty Indices for Colombia.
  • Guo, P., Zhu, H. ve You, W. (2018). Asymmetric dependence between economic policy uncertainty and stock market returns in G7 and BRIC: A quantile regression approach. Finance Research Letters, 25, 251–258.
  • Hadri, K. ve Kurozumi, E. (2012). A simple panel stationarity test in the presence of serial correlation and a common factor. Economics Letters, 115(1), 31–34.
  • Hardouvelis, G. A., Karalas, G., Karanastasis, D. ve Samartzis, P. (2018). Economic policy uncertainty, political uncertainty and the greek economic crisis. Political Uncertainty and the Greek Economic Crisis (April 3, 2018).
  • Im, K.-S., Lee, J. ve Tieslau, M. (2005). Panel LM unit-root tests with level shifts. Oxford Bulletin of Economics and Statistics, 67(3), 393–419.
  • Jin, X., Chen, Z. ve Yang, X. (2019). Economic policy uncertainty and stock price crash risk. Accounting & Finance, 58(5), 1291–1318.
  • Ko, J.-H. ve Lee, C.-M. (2015). International economic policy uncertainty and stock prices: Wavelet approach. Economics Letters, 134, 118–122.
  • Kroese, L., Kok, S. ve Parlevliet, J. (2015). Beleidsonzekerheid in Nederland. Economisch Statistiche Berichten, 4715, 464–467.
  • Li, X., Balcilar, M., Gupta, R. ve Chang, T. (2016). The causal relationship between economic policy uncertainty and stock returns in China and India: Evidence from a bootstrap rolling window approach. Emerging Markets Finance and Trade, 52(3), 674–689.
  • Ongan, S. ve Göçer, I. (2017). Testing the causalities between economic policy uncertainty and the US stock indices: Applications of linear and nonlinear approaches. Annals of Financial Economics, 12(04), 1750016.
  • Pesaran, M. H. (2004). General diagnostic tests for cross section dependence in panels.
  • Pesaran, M. H. (2006). Estimation and inference in large heterogeneous panels with a multifactor error structure. Econometrica, 74(4), 967–1012.
  • Pesaran, M. H., Ullah, A. ve Yamagata, T. (2008). A bias-adjusted LM test of error cross-section independence. The Econometrics Journal, 11(1), 105–127.
  • Phan, D. H. B., Sharma, S. S. ve Tran, V. T. (2018). Can economic policy uncertainty predict stock returns? Global evidence. Journal of International Financial Markets, Institutions and Money, 55, 134–150.
  • Sum, V. (2013). The ASEAN stock market performance and economic policy uncertainty in the United States. Economic Papers: A journal of applied economics and policy, 32(4), 512–521.
  • Tsai, I.-C. (2017). The source of global stock market risk: A viewpoint of economic policy uncertainty. Economic Modelling, 60, 122–131.
  • Westerlund, J. ve Edgerton, D. L. (2007). A panel bootstrap cointegration test. Economics letters, 97(3), 185–190.
  • Wu, T.-P., Liu, S.-B. ve Hsueh, S.-J. (2016). The causal relationship between economic policy uncertainty and stock market: A panel data analysis. International Economic Journal, 30(1), 109–122.
  • Zalla, R. (2017). Economic policy uncertainty in Ireland. Atlantic Economic Journal, 45(2), 269–271.

EKONOMİ POLİTİKASI BELİRSİZLİĞİ İLE G7 ÜLKE BORSALARI İLİŞKİ BELİRSİZLİĞİ ÜLKE BORSALARI ARASINDAKİ İLİŞKİ

Year 2020, Volume , Issue 20, 353 - 372, 23.10.2020
https://doi.org/10.29029/busbed.732124

Abstract

Savaş, finansal krizler ve siyasi seçimler gibi durumlarda ortaya çıkan belirsizlik kavramı, ekonomik birimlerin alacağı kararlar üzerinde oldukça etkili olmaktadır. Belirsizliğin olduğu bir ortam, yatırımcıların ekonomiye olan güvenini olumsuz etkilemektedir. Belirsizliğin yarattığı olumsuz etkilerin gözlemlenebildiği alanlardan birisi de ülke borsalarıdır. Bu çalışma, G7 gelişmiş ülke piyasalarında ekonomi politikası belirsizliği endeksi ile borsa arasındaki ilişkiyi araştırmaktadır. Bu amaçla, 1997'den 2019'a kadar olan aylık dönem, gözlemlenen piyasalar arasındaki olası yatay kesit bağımlılığını dikkate alan ikinci nesil panel veri metodolojileri ile incelenmiştir. Ekonomi politikası belirsizliğinin G7 ülke borsa endeksleri üzerindeki uzun dönem etkisinin tahmin edilmesinde, ülkeler arasında gözlemlenen yatay kesit bağımlılığını dikkate alan ortak ilişkili etkiler (CCE) tahmincisi kullanılmıştır. Ekonomi politikası belirsizliği endeksi ile G7 ülke borsa endeksleri arasındaki nedensellik ilişkisi ise yatay kesit bağımlılığını ve heterojeniteyi dikkate alan panel nedensellik testi ile incelenmiştir. Sonuçlar, ekonomi politikası belirsizliğinin G7 ülke borsa endekslerini uzun vadede olumsuz etkilediğini göstermektedir. Ayrıca, panel nedensellik test sonuçları, ekonomi politikası belirsizliği ile G7 ülke borsaları arasında çift yönlü nedensellik olduğunu ortaya koymuştur.

References

  • Akkuş, A. G. D. Ö. (2017). Ekonomik Politika Belirsizliği ve Politik İstikrarsızlığın Büyüme Üzerindeki Etkisi. Anadolu Üniversitesi Sosyal Bilimler Dergisi, 17(3), 27–42.
  • Alqahtani, A. ve Martinez, M. (2020). US Economic Policy Uncertainty and GCC Stock Market. Asia-Pacific Financial Markets, 1–11.
  • Alqahtani, A. ve Taillard, M. (2019). The Impact of US Economic Policy Uncertainty Shock on GCC Stock Market Performance. Asian Journal of Law and Economics, 10(2).
  • Al-Thaqeb, S. A. ve Algharabali, B. G. (2019). Economic policy uncertainty: A literature review. The Journal of Economic Asymmetries, 20, e00133. doi:10.1016/j.jeca.2019.e00133
  • Arbatli, E. C., Davis, S. J., Ito, A. ve Miake, N. (2017). Policy uncertainty in Japan. National Bureau of Economic Research. Armelius, H., Hull, I. ve Köhler, H. S. (2017). The timing of uncertainty shocks in a small open economy. Economics Letters, 155, 31–34.
  • Arouri, M. ve Roubaud, D. (2016). On the determinants of stock market dynamics in emerging countries: The role of economic policy uncertainty in China and India. Economics Bulletin, 36(2), 760–770.
  • Baker, S., Bloom, N. ve Davis, S. J. (2012). Measuring Economic Policy Uncertainty. University of Chicago and Stanford University.
  • Baker, S. R., Bloom, N. ve Davis, S. J. (2016). Measuring economic policy uncertainty. The quarterly journal of economics, 131(4), 1593–1636.
  • Breusch, T. S. ve Pagan, A. R. (1980). The Lagrange multiplier test and its applications to model specification in econometrics. The review of economic studies, 47(1), 239–253.
  • Brogaard, J. ve Detzel, A. (2015). The asset-pricing implications of government economic policy uncertainty. Management Science, 61(1), 3–18.
  • Cerda, R., Silva, A. ve Valente, J. T. (2016). Economic policy uncertainty indices for Chile. Economic Policy Uncertainty working paper.
  • Chen, J., Jiang, F. ve Tong, G. (2017). Economic policy uncertainty in China and stock market expected returns. Accounting & Finance, 57(5), 1265–1286.
  • Chiang, T. C. (2019). Economic policy uncertainty, risk and stock returns: Evidence from G7 stock markets. Finance Research Letters, 29(C), 41–49.
  • Christou, C., Cunado, J., Gupta, R. ve Hassapis, C. (2017). Economic policy uncertainty and stock market returns in PacificRim countries: Evidence based on a Bayesian panel VAR model. Journal of Multinational Financial Management, 40, 92–102.
  • Dakhlaoui, I. ve Aloui, C. (2016). The interactive relationship between the US economic policy uncertainty and BRIC stock markets. International Economics, 146, 141–157.
  • Davis, S. J. (2016). An index of global economic policy uncertainty. National Bureau of Economic Research. Dumitrescu, E.-I. ve Hurlin, C. (2012). Testing for Granger non-causality in heterogeneous panels. Economic modelling, 29(4), 1450–1460.
  • Fang, L., Yu, H. ve Li, L. (2017). The effect of economic policy uncertainty on the long-term correlation between US stock and bond markets. Economic Modelling, 66, 139–145.
  • Ghirelli, C., Pérez, J. J. ve Urtasun, A. (2019). A new economic policy uncertainty index for Spain. Economics Letters, 182, 64–67.
  • Gil, M. ve Silva, D. (2018). Economic Policy Uncertainty Indices for Colombia.
  • Guo, P., Zhu, H. ve You, W. (2018). Asymmetric dependence between economic policy uncertainty and stock market returns in G7 and BRIC: A quantile regression approach. Finance Research Letters, 25, 251–258.
  • Hadri, K. ve Kurozumi, E. (2012). A simple panel stationarity test in the presence of serial correlation and a common factor. Economics Letters, 115(1), 31–34.
  • Hardouvelis, G. A., Karalas, G., Karanastasis, D. ve Samartzis, P. (2018). Economic policy uncertainty, political uncertainty and the greek economic crisis. Political Uncertainty and the Greek Economic Crisis (April 3, 2018).
  • Im, K.-S., Lee, J. ve Tieslau, M. (2005). Panel LM unit-root tests with level shifts. Oxford Bulletin of Economics and Statistics, 67(3), 393–419.
  • Jin, X., Chen, Z. ve Yang, X. (2019). Economic policy uncertainty and stock price crash risk. Accounting & Finance, 58(5), 1291–1318.
  • Ko, J.-H. ve Lee, C.-M. (2015). International economic policy uncertainty and stock prices: Wavelet approach. Economics Letters, 134, 118–122.
  • Kroese, L., Kok, S. ve Parlevliet, J. (2015). Beleidsonzekerheid in Nederland. Economisch Statistiche Berichten, 4715, 464–467.
  • Li, X., Balcilar, M., Gupta, R. ve Chang, T. (2016). The causal relationship between economic policy uncertainty and stock returns in China and India: Evidence from a bootstrap rolling window approach. Emerging Markets Finance and Trade, 52(3), 674–689.
  • Ongan, S. ve Göçer, I. (2017). Testing the causalities between economic policy uncertainty and the US stock indices: Applications of linear and nonlinear approaches. Annals of Financial Economics, 12(04), 1750016.
  • Pesaran, M. H. (2004). General diagnostic tests for cross section dependence in panels.
  • Pesaran, M. H. (2006). Estimation and inference in large heterogeneous panels with a multifactor error structure. Econometrica, 74(4), 967–1012.
  • Pesaran, M. H., Ullah, A. ve Yamagata, T. (2008). A bias-adjusted LM test of error cross-section independence. The Econometrics Journal, 11(1), 105–127.
  • Phan, D. H. B., Sharma, S. S. ve Tran, V. T. (2018). Can economic policy uncertainty predict stock returns? Global evidence. Journal of International Financial Markets, Institutions and Money, 55, 134–150.
  • Sum, V. (2013). The ASEAN stock market performance and economic policy uncertainty in the United States. Economic Papers: A journal of applied economics and policy, 32(4), 512–521.
  • Tsai, I.-C. (2017). The source of global stock market risk: A viewpoint of economic policy uncertainty. Economic Modelling, 60, 122–131.
  • Westerlund, J. ve Edgerton, D. L. (2007). A panel bootstrap cointegration test. Economics letters, 97(3), 185–190.
  • Wu, T.-P., Liu, S.-B. ve Hsueh, S.-J. (2016). The causal relationship between economic policy uncertainty and stock market: A panel data analysis. International Economic Journal, 30(1), 109–122.
  • Zalla, R. (2017). Economic policy uncertainty in Ireland. Atlantic Economic Journal, 45(2), 269–271.

Details

Primary Language Turkish
Subjects Management
Journal Section Articles
Authors

Eray GEMİCİ (Primary Author)
Gaziantep Üniversitesi
0000-0001-5449-0568
Türkiye

Publication Date October 23, 2020
Published in Issue Year 2020, Volume , Issue 20

Cite

APA Gemici, E. (2020). EKONOMİ POLİTİKASI BELİRSİZLİĞİ İLE G7 ÜLKE BORSALARI İLİŞKİ BELİRSİZLİĞİ ÜLKE BORSALARI ARASINDAKİ İLİŞKİ . Bingöl Üniversitesi Sosyal Bilimler Enstitüsü Dergisi , (20) , 353-372 . DOI: 10.29029/busbed.732124