Examining structural stability and time-varying causality between economic policy uncertainty and Asia-Pacific Islamic stock price

Isiaka Raifu

Economics Bulletin, 2023, vol. 43, issue 1, 28 - 37

Abstract: This study examines the existence of structural stability and time-varying causality between economic policy uncertainty (EPU) and Asia-Pacific Islamic Stock Price (APISP) using the structural stability test and time-varying causality methods developed by Dizten, et al. (2021) and Shi, et al (2018) respectively. Our findings show the existence of five structural breaks between EPU and APISP which fall between several waves of the COVID-19 pandemic and the commencement of the Russia-Ukraine war. The finding further shows that the effect of EPU on APISP is negative and statistically significant in the first breakpoint, however, the effect turns to insignificant positive and negative in the second and third break points respectively. In the fourth and fifth breakpoints, an increase in EPU leads to a significant negative on APISP. We also find evidence of time-varying bidirectional causality between EPU and APISP which shows that both variables have predictive power on each other.

Keywords: Economic Policy Uncertainty; Asia-Pacific Islamic Stock Price; Structural Breaks; Time-Varying Causality (search for similar items in EconPapers)
JEL-codes: C4 G1 (search for similar items in EconPapers)
Date: 2023-03-30
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