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Emerging market equities and US policy uncertainty: evidence from Malaysia based on ARDL

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  • Gadhoum, Anouar
  • Masih, Mansur

Abstract

‘When Wall Street sneezes, the world catches pneumonia. And when America recovers, the planet has a spring in its step’ – this metaphor appeared to be an accurate description of the global economy for decades. This paper examines the short and the long-term impact of the influential global factor (US Policy Uncertainty) on the emerging markets’ stocks using Malaysia as a case study. The study applies the ‘Auto-Regressive Distributed Lag’ (ARDL) technique, which has taken care of a major limitation of the conventional co-integration tests, in that they suffer from the pre-test biases. Based on the above rigorous methodology, the developed world disturbances appear to have limited impact on the Malaysian stock markets in the long run. This finding is plausible and has strong policy implications on portfolio investing and diversifications by investing in the emerging equity markets as the Bursa-Malaysia could function as a hedge against negative shocks in advanced economies.

Suggested Citation

  • Gadhoum, Anouar & Masih, Mansur, 2018. "Emerging market equities and US policy uncertainty: evidence from Malaysia based on ARDL," MPRA Paper 105469, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:105469
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    More about this item

    Keywords

    US policy uncertainty; emerging equity markets; ARDL; Malaysia;
    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
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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