The Causal Relationship between Economic Policy Uncertainty and Stock Market: A Panel Data Analysis

摘要

This study applies recently developed bootstrap panel Granger causality, proposed by K6nya, to investigate a causal link between economic policy uncertainty and stock markets in nine countries over monthly periods from 2003M01 to 2014M12 (Konya (2006) Exports and growth: Granger causality analysis on OECD countries with a panel data approach. Economic Modelling, 23, 978-992). The modeling allows us to examine both the cross-sectional dependency and the country-specific heterogeneity. The empirical results indicate that not all countries are alike, and that the theoretical prediction that stock markets fall at the announcement of a policy change is not always supported. Specifically, this work finds evidence of the stock market leading hypothesis for India, Italy, and Spain, while the economic policy uncertainty leading hypothesis cannot be rejected for the United Kingdom. In addition, the neutrality hypothesis was supported in the remaining countries (Canada, China, France, Germany and the United States), while the feedback hypothesis, however, is not found. The findings of this study could provide important policy implications for these nine countries.