The role of economic policy uncertainties in predicting stock returns and their volatility for Hong Kong, Malaysia and South Korea
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Date
Authors
Balcilar, Mehmet
Gupta, Rangan
Kim, Won Joong
Kyei, Clement Kweku
Journal Title
Journal ISSN
Volume Title
Publisher
Elsevier
Abstract
This paper analyzes whether we can predict stock return and its volatility of Hong Kong, Malaysia and South Korea based on measures of domestic and global (China, the European Area, Japan, and the US) economic policy uncertainties (EPU). While, linear Granger causality tests fail to find evidence of predictability, barring the case of South Korean EPU predicting its own stock returns, when we use a nonparametric causality-in-quantiles test, strong evidence of causality is detected from the EPUs for stock return volatility of Malaysia, and both returns and volatility at certain parts of the conditional distributions for South Korea. There is no evidence of predictability from domestic and global EPUs for return and volatility of the Hong Kong stock market. Given the statistical evidence of nonlinearity in our data set, we consider the results from the nonparametric test as more robust relative to the standard linear causality test.
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Keywords
Economic policy uncertainty (EPU), Emerging markets, Linear causality, Nonparametric quantile causality, Stock returns, Volatility
Sustainable Development Goals
Citation
Balcilar, M., Gupta, R., Kim, W.J. et al. 2019, 'The role of economic policy uncertainties in predicting stock returns and their volatility for Hong Kong, Malaysia and South Korea', International Review of Economics and Finance, vol. 59, pp. 150-163.