IDEAS home Printed from https://ideas.repec.org/a/eee/finlet/v55y2023ipas1544612323002490.html
   My bibliography  Save this article

Commonality in BRICS stock markets’ reaction to global economic policy uncertainty: Evidence from a panel GARCH model with cross sectional dependence

Author

Listed:
  • Mamman, Suleiman O.
  • Wang, Zhanqin
  • Iliyasu, Jamilu

Abstract

The rapid growth of BRICS has increasingly integrated their markets into the global economy. Thus, making their financial markets more vulnerable to external shocks. This study examines BRICS stock markets’ response to global economic policy uncertainty using a panel GARCH model. The results show that global economic policy uncertainty significantly raises volatility with homogeneous response across the markets. The findings also suggests that COVID-19 has amplified the adverse impact of the uncertainties on prices and volatility. One major implication of the findings is that the BRICS can develop a joint policy for mitigating policy uncertainties spillovers.

Suggested Citation

  • Mamman, Suleiman O. & Wang, Zhanqin & Iliyasu, Jamilu, 2023. "Commonality in BRICS stock markets’ reaction to global economic policy uncertainty: Evidence from a panel GARCH model with cross sectional dependence," Finance Research Letters, Elsevier, vol. 55(PA).
    • Handle: RePEc:eee:finlet:v:55:y:2023:i:pa:s1544612323002490
    DOI: 10.1016/j.frl.2023.103877
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1544612323002490
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.frl.2023.103877?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Balcilar, Mehmet & Bonato, Matteo & Demirer, Riza & Gupta, Rangan, 2018. "Geopolitical risks and stock market dynamics of the BRICS," Economic Systems, Elsevier, vol. 42(2), pages 295-306.
    2. Arouri, Mohamed & Estay, Christophe & Rault, Christophe & Roubaud, David, 2016. "Economic policy uncertainty and stock markets: Long-run evidence from the US," Finance Research Letters, Elsevier, vol. 18(C), pages 136-141.
    3. Hashem Pesaran, M. & Yamagata, Takashi, 2008. "Testing slope homogeneity in large panels," Journal of Econometrics, Elsevier, vol. 142(1), pages 50-93, January.
    4. Lubos Pástor & Pietro Veronesi, 2012. "Uncertainty about Government Policy and Stock Prices," Journal of Finance, American Finance Association, vol. 67(4), pages 1219-1264, August.
    5. Scott R. Baker & Nicholas Bloom & Steven J. Davis, 2016. "Measuring Economic Policy Uncertainty," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(4), pages 1593-1636.
    6. Mohammad Enamul Hoque & Mohd Azlan Shah Zaidi, 2020. "Impacts of Global-Economic-Policy Uncertainty on Emerging Stock Market: Evidence from Linear and Non-Linear Models," Prague Economic Papers, Prague University of Economics and Business, vol. 2020(1), pages 53-66.
    7. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
    8. Kannadhasan, M. & Das, Debojyoti, 2020. "Do Asian emerging stock markets react to international economic policy uncertainty and geopolitical risk alike? A quantile regression approach," Finance Research Letters, Elsevier, vol. 34(C).
    9. Christos Bouras & Christina Christou & Rangan Gupta & Tahir Suleman, 2020. "Geopolitical Risks, Returns, and Volatility in Emerging Stock Markets: Evidence from a Panel GARCH Model," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 55(8), pages 1841-1856, July.
    10. Jim Lee & Harold Glenn A. Valera, 2016. "Price transmission and volatility spillovers in Asian rice markets: Evidence from MGARCH and panel GARCH models," The International Trade Journal, Taylor & Francis Journals, vol. 30(1), pages 14-32, January.
    11. M. Hashem Pesaran, 2021. "General diagnostic tests for cross-sectional dependence in panels," Empirical Economics, Springer, vol. 60(1), pages 13-50, January.
    12. Rodolfo Cermeño & María Eugenia Sanin, 2015. "Are Flexible Exchange Rate Regimes more Volatile? Panel GARCH Evidence for the G7 and Latin America," Review of Development Economics, Wiley Blackwell, vol. 19(2), pages 297-308, May.
    13. Chang, Kuang-Liang, 2022. "Do economic policy uncertainty indices matter in joint volatility cycles between U.S. and Japanese stock markets?," Finance Research Letters, Elsevier, vol. 47(PA).
    14. Ribeiro, Pedro Pires & Cermeño, Rodolfo & Curto, José Dias, 2017. "Sovereign bond markets and financial volatility dynamics: Panel-GARCH evidence for six euro area countries," Finance Research Letters, Elsevier, vol. 21(C), pages 107-114.
    15. repec:eee:finlet:v:24:y:2018:i:c:p:56-63 is not listed on IDEAS
    16. Bollerslev, Tim, 1990. "Modelling the Coherence in Short-run Nominal Exchange Rates: A Multivariate Generalized ARCH Model," The Review of Economics and Statistics, MIT Press, vol. 72(3), pages 498-505, August.
    17. Li, Tao & Ma, Feng & Zhang, Xuehua & Zhang, Yaojie, 2020. "Economic policy uncertainty and the Chinese stock market volatility: Novel evidence," Economic Modelling, Elsevier, vol. 87(C), pages 24-33.
    18. Arouri, Mohamed & Estay, Christophe & Rault, Christophe & Roubaud, David, 2016. "Economic policy uncertainty and stock markets: Long-run evidence from the US," Finance Research Letters, Elsevier, vol. 18(C), pages 136-141.
    19. Guo, Peng & Zhu, Huiming & You, Wanhai, 2018. "Asymmetric dependence between economic policy uncertainty and stock market returns in G7 and BRIC: A quantile regression approach," Finance Research Letters, Elsevier, vol. 25(C), pages 251-258.
    20. Lee, Jim, 2010. "The link between output growth and volatility: Evidence from a GARCH model with panel data," Economics Letters, Elsevier, vol. 106(2), pages 143-145, February.
    21. Mohammad Enamul Hoque & Mohd Azlan Shah Zaidi, 2019. "The impacts of global economic policy uncertainty on stock market returns in regime switching environment: Evidence from sectoral perspectives," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 24(2), pages 991-1016, April.
    22. Rodolfo Cermeño & Kevin B. Grier, 2006. "Conditional Heteroskedasticity and Cross-Sectional Dependence in Panel Data: An Empirical Study of Inflation Uncertainty in the G7 countries," Contributions to Economic Analysis, in: Panel Data Econometrics Theoretical Contributions and Empirical Applications, pages 259-277, Emerald Group Publishing Limited.
    23. Asai, Manabu, 2023. "Feasible Panel GARCH Models: Variance-Targeting Estimation and Empirical Application," Econometrics and Statistics, Elsevier, vol. 25(C), pages 23-38.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Das, Debojyoti & Kannadhasan, M. & Bhattacharyya, Malay, 2019. "Do the emerging stock markets react to international economic policy uncertainty, geopolitical risk and financial stress alike?," The North American Journal of Economics and Finance, Elsevier, vol. 48(C), pages 1-19.
    2. Ranajit Kumar Bairagi, 2022. "Dynamic Impacts of Economic Policy Uncertainty on Australian Stock Market: An Intercontinental Evidence," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 21(1), pages 64-91, March.
    3. Asai, Manabu, 2023. "Feasible Panel GARCH Models: Variance-Targeting Estimation and Empirical Application," Econometrics and Statistics, Elsevier, vol. 25(C), pages 23-38.
    4. Kundu, Srikanta & Paul, Amartya, 2022. "Effect of economic policy uncertainty on stock market return and volatility under heterogeneous market characteristics," International Review of Economics & Finance, Elsevier, vol. 80(C), pages 597-612.
    5. Nguyen Phuc Canh & Nguyen Thanh Binh & Su Dinh Thanh & Christophe Schinckus, 2020. "Determinants of foreign direct investment inflows: The role of economic policy uncertainty," International Economics, CEPII research center, issue 161, pages 159-172.
    6. Abir Abid & Christophe Rault, 2021. "On the Exchange Rates Volatility and Economic Policy Uncertainty Nexus: A Panel VAR Approach for Emerging Markets," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 19(3), pages 403-425, September.
    7. Shabir Mohsin Hashmi & Muhammad Akram Gilal & Wing-Keung Wong, 2021. "Sustainability of Global Economic Policy and Stock Market Returns in Indonesia," Sustainability, MDPI, vol. 13(10), pages 1-18, May.
    8. Hu, Zhijun & Kutan, Ali M. & Sun, Ping-Wen, 2018. "Is U.S. economic policy uncertainty priced in China's A-shares market? Evidence from market, industry, and individual stocks," International Review of Financial Analysis, Elsevier, vol. 57(C), pages 207-220.
    9. Rehman, Mobeen Ur & Sensoy, Ahmet & Eraslan, Veysel & Shahzad, Syed Jawad Hussain & Vo, Xuan Vinh, 2021. "Sensitivity of US equity returns to economic policy uncertainty and investor sentiments," The North American Journal of Economics and Finance, Elsevier, vol. 57(C).
    10. Rababa’a, Abdel Razzaq Al & Alomari, Mohammad & Rehman, Mobeen Ur & McMillan, David & Hendawi, Raed, 2022. "Multiscale relationship between economic policy uncertainty and sectoral returns: Implications for portfolio management," Research in International Business and Finance, Elsevier, vol. 61(C).
    11. Bakhtiar Javaheri & Fateh habibi & Ramin Amani, 2022. "Economic policy uncertainty and the US stock market trading: non-ARDL evidence," Future Business Journal, Springer, vol. 8(1), pages 1-10, December.
    12. Lv, Wendai & Qi, Jipeng & Feng, Jing, 2023. "Economic policy uncertainty and environmental governance company volatility: Evidence from China," Research in International Business and Finance, Elsevier, vol. 64(C).
    13. Chen, Wen-Yi & Chen, Mei-Ping, 2022. "Twitter’s daily happiness sentiment, economic policy uncertainty, and stock index fluctuations," The North American Journal of Economics and Finance, Elsevier, vol. 62(C).
    14. Abir Abid & Christophe Rault, 2020. "On the Exchange Rate and Economic Policy Uncertainty Nexus: A Panel VAR Approach for Emerging Markets," CESifo Working Paper Series 8189, CESifo.
    15. Wen, Fenghua & Shui, Aojie & Cheng, Yuxiang & Gong, Xu, 2022. "Monetary policy uncertainty and stock returns in G7 and BRICS countries: A quantile-on-quantile approach," International Review of Economics & Finance, Elsevier, vol. 78(C), pages 457-482.
    16. Yuan, Di & Li, Sufang & Li, Rong & Zhang, Feipeng, 2022. "Economic policy uncertainty, oil and stock markets in BRIC: Evidence from quantiles analysis," Energy Economics, Elsevier, vol. 110(C).
    17. Liu, Zhenhua & Zhang, Huiying & Ding, Zhihua & Lv, Tao & Wang, Xu & Wang, Deqing, 2022. "When are the effects of economic policy uncertainty on oil–stock correlations larger? Evidence from a regime-switching analysis," Economic Modelling, Elsevier, vol. 114(C).
    18. Mobeen Ur Rehman & Wafa Ghardallou & Nasir Ahmad & Xuan Vinh Vo & Sang Hoon Kang, 2024. "Does effect of risk and uncertainties on US sectoral returns differ across different investment horizons and market conditions," Risk Management, Palgrave Macmillan, vol. 26(1), pages 1-49, February.
    19. Vamsidhar Ambatipudi & Dilip Kumar, 2022. "Economic Policy Uncertainty Versus Sector Volatility: Evidence from India Using Multi-scale Wavelet Granger Causality Analysis," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 21(2), pages 184-210, June.
    20. He, Feng & Wang, Ziwei & Yin, Libo, 2020. "Asymmetric volatility spillovers between international economic policy uncertainty and the U.S. stock market," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).

    More about this item

    Keywords

    Stock market returns; Economic policy uncertainty; Panel GARCH; Market integration; Homogenous; BRICS; Emerging market;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finlet:v:55:y:2023:i:pa:s1544612323002490. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/frl .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.