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The Nexus Between Economic Policy Uncertainty and Stock Market Volatility in the CEE-3 Countries

Author

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  • Güngör Arifenur

    (Arifenur Güngör, PhD, Assistant Professor, Department of Economics, Istanbul Topkapı University, Türkiye)

  • Güngör Mahmut Sami

    (Mahmut Sami Güngör, PhD, Assistant Professor, Department of Economics, Marmara University, Marmara University Göztepe Campus, Kadıköy-İstanbul, Türkiye)

Abstract

A stock market plays a pivotal role in a financial system and is monitored as a yardstick of a healthy economy. It is a stylized fact that there is a positive and significant relationship between financial development and economic growth. However, emerging markets often exhibit more volatile returns than developed markets, and extreme volatility might prevent financial stability. The literature underlines the role of uncertainty in predicting volatility and suggests a strong positive association between economic policy uncertainty and stock market volatility. Against this backdrop, this study examines the dynamic nature of relationships between economic policy uncertainty (in Germany and the US) and long-run stock market volatility of CEE-3 (Central and Eastern European: the Czech Republic, Hungary, and Poland) countries. This study follows two steps in empirical analysis. First, it obtains long-run stock market volatility and then estimates dynamic regression models. The evidence shows a positive and significant one-period lagged impact of economic policy uncertainty on long-run stock market volatility.

Suggested Citation

  • Güngör Arifenur & Güngör Mahmut Sami, 2024. "The Nexus Between Economic Policy Uncertainty and Stock Market Volatility in the CEE-3 Countries," South East European Journal of Economics and Business, Sciendo, vol. 19(2), pages 60-81.
    • Handle: RePEc:vrs:seejeb:v:19:y:2024:i:2:p:60-81:n:1005
    DOI: 10.2478/jeb-2024-0016
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    More about this item

    Keywords

    Emerging stock markets; long-run volatility; uncertainty;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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