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The Impact of Directional Global Economic Policy Uncertainty on Indian Stock Market Volatility: New Evidence

Author

Listed:
  • Aswini Kumar Mishra

    (BITS)

  • Anand Theertha Nakhate

    (BITS)

  • Yash Bagra

    (J.P Morgan Chase)

  • Abinash Singh

    (Indian Institute of Management Bangalore)

  • Bibhu Prasad Kar

    (National Law University Odisha)

Abstract

This paper examines the effect of economic policy uncertainty (EPU) on the Indian capital market using the generalized autoregressive conditional heteroscedastic mixed data sampling (GARCH-MIDAS) approach. This study also disintegrates the Global EPU (GEPU) on its components using identity functions such as up, down, and composite parts dependent on the adjustment in the heading of the EPU and GEPU and tests the linkages among these parameters and the Indian securities exchange instability. Our empirical study shows that GEPU positively and significantly impacts the Indian capital market's volatility. That indicates that the Indian capital exchange volatility will also be unstable when the global economic policy uncertainty is higher. Further, based on the dynamic directions of EPU and GEPU, our results show that, in diverse situations, directional GEPU may present differently in predicting the uncertainty in the Indian capital market. This is primarily so when EPU and GEPU climb in the same period when our approach can obtain more powerful prediction precision.

Suggested Citation

  • Aswini Kumar Mishra & Anand Theertha Nakhate & Yash Bagra & Abinash Singh & Bibhu Prasad Kar, 2024. "The Impact of Directional Global Economic Policy Uncertainty on Indian Stock Market Volatility: New Evidence," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 31(3), pages 423-452, September.
    • Handle: RePEc:kap:apfinm:v:31:y:2024:i:3:d:10.1007_s10690-023-09421-y
    DOI: 10.1007/s10690-023-09421-y
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    More about this item

    Keywords

    Economic policy uncertainty (EPU); Global economic policy uncertainty (GEPU); GARCH-MIDAS model;
    All these keywords.

    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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