Impact of US Economic Policy Uncertainty on Geopolitical Risk. Evidence from BRIC Economies
DOI:
https://doi.org/10.35551/PFQ_2020_4_3Keywords:
economic policy uncertainty, geopolitical risk, quantile on quantile approach, BRIC economies, C22, E32, F51Abstract
This paper estimates the relationship between US economic policy uncertainty and geopolitical risk in the BRIC economies.1 Due to the assumption of a non-linear and asymmetric relation between US economic policy uncertainty and geopolitical risk of BRIC countries, a nonparametric estimation technique, Quantile on Quantile approach has been used for empirical analysis. The empirical results revealed that the relationship between the US economic policy uncertainty and geopolitical risk of BRIC economies is heterogeneous in nature. We noted that economic policy uncertainty in the US is negatively related to geopolitical risk in Chinese and Russian economies. However, for Indian and Brazilian economies US economic policy uncertainty is positively related to geopolitical risk. The outcomes of the study will be helpful for the investors and financial market players for taking investment decisions. It will also benefit the legislators and policymakers in making policies that could make their respective economies insulated from foreign policy risks.
References
Arif, I., Iqbai, A., Ali, S. F., Sohail, A. (2017). International Stock Market Diversië cation among Brics-P: A Cointegration Analysis. Journal of Management Sciences, 4(2), pp. 269–285
Baker, S. R., Bloom, N., Davis, S. J. (2015). Measuring economic policy uncertainty. National Bureau of Economic Research Working Paper, No. w21633
Bailcilar, M., Gupta, R., Kim, W-J., Kyei, C. (2015). The Role of Domestic and Global Economic Policy Uncertainties in Predicting Stock Returns and their Volatility in Hong Kong, Malaysia, and South Korea: Evidence from a Nonparametric Causality-in-Quantiles Approach. Department of Economics, University of Pretoria, Working Paper, No. 201586
Bailcilar, M., Bonato, M., Demirer, R., Gupta, R. (2018). Geopolitical Risks and Stock Market Dynamics of the BRICS. Economic Systems, https://doi.org/10.1016/j.ecosys.2017.05.008
Caldara, D., Iacoviello, M. (2018). Measuring Geopolitical Risk. Federal Reserve Board Internatio nal Finance Discussion Paper, No. 1222, http://dx.doi.org/10.17016/IFDP.2018.1222
Carney, M. (2016). Uncertainty, the economy and policy. Bank of England, https://www.bis.org/review/r160704c.pdf
Chuliá, H., Gupta, R., Uribe, J. M., Wohar, M. E. (2017). Impact of US uncertainties on emerging and mature markets: Evidence from a quantile-vector autoregressive approach. Journal of International Financial Markets, Institutions and Money, 48, pp. 178–191
Mensi, W., Hammoudeh, S., Reboredo, J. C., Nguyen, D. K. (2014). Do global factors impact BRICS stock markets? A quantile regression approach. Emerging Markets Review, 19, pp. 1–17
Mensi, W., Hammoudeh, S., Yoon, S-M., Nguyen, D. K. (2016). Asymmetric Linkages between BRICS Stock Returns and Country Risk Ratings: Evidence from Dynamic Panel threshold Models. Review of International Economics, 24(1), pp. 1–19
Raza, S. A., Zaighum, I., Shah, N. (2018). Economic policy uncertainty, equity premium and dependence between their quantiles: Evidence from quantile-on-quantile approach. Physica A: Statistical Mechanics and its Applications, 492, pp. 2079–2091
Sim, N., Zhou, H. (2015). Oil prices, US stock return, and the dependence between their quantiles. Journal of Banking & Finance, 55, pp. 1–8
Sum, V. (2012a). The Reaction of Stock Markets in the BRIC Countries to Economic Policy Uncertainty in the United States. SSRN Paper, No. 2094697
Sum, V. (2012b). How Do Stock Markets in China and Japan Respond to Economic Policy Uncertainty in the United States? SSRN Paper, No. 2092346
