Affiliation:
1. Asia Pacific International College, Melbourne, Victoria, Australia
Abstract
This study empirically investigates the impacts of economic policy uncertainty (EPU) of five countries from four continents on the Australian stock market with monthly observations from January 1998 to January 2021. The dynamic linkage model reports that EPUs are negatively influenced by their own lagged effect along with bidirectional volatility spillover and the returns of stock markets unidirectionally spillover to the EPU of the corresponding economy. The study documents that shocks originated in the Australian stock market spillover negatively onto its own EPU and that of China and positively onto EPUs of Europe and Japan. The shocks originated in EPUs of Australia, Europe, China, and Japan significantly negatively impact the Australian stock market. The bidirectional volatilities of EPUs can offer insight for portfolio investors in searching the possible hedging opportunities in Australia. The reported drivers of Australian EPU can be incorporated in formulating and implementing the EPU-sensitive Australian trade policies. JEL: G15, G17, G18
Subject
Economics and Econometrics,Finance
Cited by
5 articles.
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