Skip to main content
SpringerLink
Log in

Directional Spillover Effects Between BRICS Stock Markets and Economic Policy Uncertainty

  • Original Research
  • Published:
Asia-Pacific Financial Markets Aims and scope Submit manuscript

Abstract

In recent years, researchers have increasingly studied the association between the stock market and economic policy uncertainty (EPU). To have more profound knowledge, this paper investigates the evolution of the mean spillover effects between EPU and BRICS stock markets by employing both the multivariate DECO-GARCH model proposed by Engle and Kelly (J Bus Econ Stat 30(2):212–228, 2012) and the spillover index of Diebold and Yilmaz (Int J Forecast 26(1):57–66, 2012). The results uncover that the average return equicorrelation between the BRICS stock indices and EPU is positive. In addition, there is a bidirectional return spillover between EPU and BRICS stock returns in the aftermath of the recent European debt crises and the global financial crisis. Overall, our results reveal the existence of the short term, the pass-through impact of EPU via stock price fluctuation in BRICS countries. These findings might provide significant implications for portfolio managers, investors, and government agencies.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2
Fig. 3
Fig. 4
Fig. 5
Fig. 6
Fig. 7
Fig. 8

Similar content being viewed by others

Data availability

Please contact author for data and program codes requests. Data is obtained from Bloomberg and R and Rats are used to organize data.

References

  • Aielli, G. P. (2013). Dynamic conditional correlation: On properties and estimation. Journal of Business & Economic Statistics, 31(3), 282–299.

    Article  Google Scholar 

  • Al-Yahyaee, K. H., Shahzad, S. J. H., & Mensi, W. (2020). Tail dependence structures between economic policy uncertainty and foreign exchange markets: Nonparametric quantiles methods. International Economics, 161, 66–82.

    Article  Google Scholar 

  • Antonakakis, N., Chatziantoniou, I., & Filis, G. (2014). Dynamic spillovers of oil price shocks and economic policy uncertainty. Energy Economics, 44, 433–447.

    Article  Google Scholar 

  • Arouri, M., Estay, C., Rault, C., & Roubaud, D. (2016). Economic policy uncertainty and stock markets: Long-run evidence from the US. Finance Research Letters, 18, 136–141.

    Article  Google Scholar 

  • Aboura, S., & Chevallier, J. (2014). Volatility equicorrelation: A cross-market perspective. Economics Letters, 122(2), 289–295.

    Article  Google Scholar 

  • Asgharian, H., Christiansen, C., Gupta, R., & Hou, A. J. (2016). Effects of Economic Policy Uncertainty Shocks on the Long-Run US-UK Stock Market Correlation. Available at SSRN 2846925.

  • Asgharian, H., Christiansen, C., & Hou, A. J. (2019). Economic policy uncertainty and long-run stock market volatility and correlation. Available at SSRN 3146924.

  • Bouri, E., Vo, X. V., & Saeed, T. (2020). Return equicorrelation in the cryptocurrency market: Analysis and determinants. Finance Research Letters. https://doi.org/10.1016/j.frl.2020.101497.

    Article  Google Scholar 

  • Bartsch, Z. (2019). Economic policy uncertainty and dollar-pound exchange rate return volatility. Journal of International Money and Finance, 98, 102067.

    Article  Google Scholar 

  • Baker, S. R., Bloom, N., & Davis, S. J. (2016). Measuring economic policy uncertainty. The Quarterly Journal of Economics, 131(4), 1593–1636.

    Article  Google Scholar 

  • Brogaard, J., & Detzel, A. (2015). The asset-pricing implications of government economic policy uncertainty. Management Science, 61(1), 3–18.

    Article  Google Scholar 

  • Chen, X., Sun, X., & Wang, J. (2019). Dynamic spillover effect between oil prices and economic policy uncertainty in BRIC countries: A wavelet-based approach. Emerging Markets Finance and Trade, 55(12), 2703–2717.

    Article  Google Scholar 

  • Chen, L., Du, Z., & Hu, Z. (2020a). Impact of economic policy uncertainty on exchange rate volatility of China. Finance Research Letters, 32, 101266.

    Article  Google Scholar 

  • Chen, X., Sun, X., & Li, J. (2020b). How does economic policy uncertainty react to oil price shocks? A multi-scale perspective. Applied Economics Letters, 27(3), 188–193.

    Article  Google Scholar 

  • Christou, C., Cunado, J., Gupta, R., & 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.

    Article  Google Scholar 

  • Das, D., & Kumar, S. B. (2018). International economic policy uncertainty and stock prices revisited: Multiple and Partial wavelet approach. Economics Letters, 164, 100–108.

    Article  Google Scholar 

  • Demir, E., Gozgor, G., Lau, C. K. M., & Vigne, S. A. (2018). Does economic policy uncertainty predict the Bitcoin returns? An empirical investigation. Finance Research Letters, 26, 145–149.

    Article  Google Scholar 

  • Demirer, R., Gkillas, K., Suleman, T. (2019) Economic policy uncertainty and extreme events in the US stock market Working paper. https://scholar.google.com/scholar_lookup?title=Economic%20policy%20uncertainty%20and%20extreme%20events%20in%20the%20US%20stock%20market&publication_year=2019&author=R.%20Demirer&author=K.%20Gkillas&author=T.%20Suleman

  • Diebold, F. X., & Yilmaz, K. (2012). Better to give than to receive: Predictive directional measurement of volatility spillovers. International Journal of Forecasting, 28(1), 57–66.

    Article  Google Scholar 

  • Engle, R., & Kelly, B. (2012). Dynamic equicorrelation. Journal of Business & Economic Statistics, 30(2), 212–228.

    Article  Google Scholar 

  • Engle, R. (2002). Dynamic conditional correlation: A simple class of multivariate generalized autoregressive conditional heteroskedasticity models. Journal of Business & Economic Statistics, 20(3), 339–350.

    Article  Google Scholar 

  • Fang, L., Bouri, E., Gupta, R., & Roubaud, D. (2019). Does global economic uncertainty matter for the volatility and hedging effectiveness of Bitcoin? International Review of Financial Analysis, 61, 29–36.

    Article  Google Scholar 

  • Jin, X., Chen, Z., & Yang, X. (2019). Economic policy uncertainty and stock price crash risk. Accounting & Finance, 58(5), 1291–1318.

    Article  Google Scholar 

  • Hung, N. T. (2020). Market integration among foreign exchange rate movements in central and eastern European countries. Society and Economy, 42(1), 1–20.

    Article  Google Scholar 

  • Hung, N. T. (2019). An analysis of CEE equity market integration and their volatility spillover effects. European Journal of Management and Business Economics, 29(1), 23–40.

    Article  Google Scholar 

  • Ko, J. H., & Lee, C. M. (2015). International economic policy uncertainty and stock prices: Wavelet approach. Economics Letters, 134, 118–122.

    Article  Google Scholar 

  • Kido, Y. (2016). On the link between the US economic policy uncertainty and exchange rates. Economics Letters, 144, 49–52.

    Article  Google Scholar 

  • Kang, W., & Ratti, R. A. (2013). Oil shocks, policy uncertainty and stock market return. Journal of International Financial Markets, Institutions and Money, 26, 305–318.

    Article  Google Scholar 

  • Kang, S. H., Uddin, G. S., Troster, V., & Yoon, S. M. (2019). Directional spillover effects between ASEAN and world stock markets. Journal of Multinational Financial Management, 52, 100592.

    Article  Google Scholar 

  • Kang, S. H., & Yoon, S. M. (2019). Financial crises and dynamic spillovers among Chinese stock and commodity futures markets. Physica A: Statistical Mechanics and its Applications, 531, 121776.

    Article  Google Scholar 

  • Li, X. L., Balcilar, M., Gupta, R., & 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.

    Article  Google Scholar 

  • Liang, C. C., Troy, C., & Rouyer, E. (2020). US uncertainty and Asian stock prices: Evidence from the asymmetric NARDL model. The North American Journal of Economics and Finance, 51, 101046.

    Article  Google Scholar 

  • Luo, Y., & Zhang, C. (2020). Economic policy uncertainty and stock price crash risk. Research in International Business and Finance, 51, 101112.

    Article  Google Scholar 

  • Lam, S. S., & Zhang, W. (2014). Does policy uncertainty matter for international equity markets. Manuscript, Department of Finance, National University of Singapore. http://papers.ssrn.com/sol3/papers. cfm.

  • Li, X. M. (2017). New evidence on economic policy uncertainty and equity premium. Pacific-Basin Finance Journal, 46, 41–56.

    Article  Google Scholar 

  • Li, R., Li, S., Yuan, D., & Yu, K. (2020). Does economic policy uncertainty in the US influence stock markets in China and India? Time-frequency evidence. Applied Economics, 52(2), 1–17.

    Google Scholar 

  • Liu, L., & Zhang, T. (2015). Economic policy uncertainty and stock market volatility. Finance Research Letters, 15, 99–105.

    Article  Google Scholar 

  • Mensi, W., Hammoudeh, S., Reboredo, S. H., & Nguyen, D. K. (2014). Do global factors impact BRICS stock markets? A quantile regression approach. Emerging Markets Review, 19, 1–17.

    Article  Google Scholar 

  • Mei, D., Zeng, Q., Cao, X., & Diao, X. (2019). Uncertainty and oil volatility: New evidence. Physica A: Statistical Mechanics and its Applications, 525, 155–163.

    Article  Google Scholar 

  • Paule-Vianez, J., Prado-Román, C., & Gómez-Martínez, R. (2020). Economic policy uncertainty and Bitcoin. Is Bitcoin a safe-haven asset? European Journal of Management and Business Economics. https://doi.org/10.1108/ejmbe-07-2019-0116.

    Article  Google Scholar 

  • Reboredo, J. C., & Uddin, G. S. (2016). Do financial stress and policy uncertainty have an impact on the energy and metals markets? A quantile regression approach. International Review of Economics & Finance, 43, 284–298.

    Article  Google Scholar 

  • Syed Abul, B., Alfred A, H., & Perry, S. (2019). The impact of economic policy uncertainty and commodity prices on CARB country stock market volatility (No. 96577). University Library of Munich, Germany.

  • Tiwari, A. K., Jana, R. K., & Roubaud, D. (2019). The policy uncertainty and market volatility puzzle: Evidence from wavelet analysis. Finance Research Letters. https://doi.org/10.1016/j.frl.2018.11.016.

    Article  Google Scholar 

  • Tsung-Pao, Wu., Liu, S.-B., & 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. https://doi.org/10.1080/10168737.2015.1136668.

    Article  Google Scholar 

  • Vo, X. V., & Ellis, C. (2018). International financial integration: Stock return linkages and volatility transmission between Vietnam and advanced countries. Emerging Markets Review, 36, 19–27.

    Article  Google Scholar 

  • Wang, G. J., Xie, C., Wen, D., & Zhao, L. (2019). When Bitcoin meets economic policy uncertainty (EPU): Measuring risk spillover effect from EPU to Bitcoin. Finance Research Letters. https://doi.org/10.1016/j.frl.2018.12.028.

    Article  Google Scholar 

  • Yin, D. A. I., Zhang, J. W., Yu, X. Z., & Xin, L. I. (2017). Causality between economic policy uncertainty and exchange rate in China with considering quantile differences. Theoretical & Applied Economics, 24(3), 29–38.

    Google Scholar 

  • Zhang, D., Lei, L., Ji, Q., & Kutan, A. M. (2019). Economic policy uncertainty in the US and China and their impact on the global markets. Economic Modelling, 79, 47–56.

    Article  Google Scholar 

Download references

Acknowledgements

The authors are grateful to the anonymous referees of the journal for their extremely useful suggestions to improve the quality of the article. Usual disclaimers apply.

Funding

The author received no financial support for the research, authorship and/or publication of this article.

Author information

Authors and Affiliations

  1. Faculty of Economics and Law, University of Finance-Marketing, Ho Chi Minh City, Vietnam

    Ngo Thai Hung

Authors
  1. Ngo Thai Hung
    View author publications

    You can also search for this author in PubMed Google Scholar

Contributions

NTH conceived of the study, carried out drafting the manuscript.

Corresponding author

Correspondence to Ngo Thai Hung.

Ethics declarations

Conflict of interest

The authors declare that they have no conflict of interest.

Additional information

Publisher's Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Hung, N.T. Directional Spillover Effects Between BRICS Stock Markets and Economic Policy Uncertainty. Asia-Pac Financ Markets 28, 429–448 (2021). https://doi.org/10.1007/s10690-020-09328-y

Download citation

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10690-020-09328-y

Keywords

JEL Classification

Search

Navigation