Economic policy uncertainty and adaptability in international capital markets

Paulo Vitor Souza de SOUZA and César Augusto Tibúrcio Silva
Additional contact information
Paulo Vitor Souza de SOUZA: Federal University of Pará, Brazil
César Augusto Tibúrcio Silva: University of Brasília, Brazil

Theoretical and Applied Economics, 2021, vol. XXVIII, issue 1(626), Spring, 85-100

Abstract: This article has analyzed the association of economic-political uncertainty with efficiency in international capital markets. As the Adaptive Markets Hypothesis (HMA) points out, market efficiency may be affected by changes in market conditions. We understand that periods of economic-political uncertainty represent changes in the economic environment of countries. The capital market's efficiency level was obtained through Hurst's exponent, calculated based on the average performance indicators of stock markets belonging to 21 different economies. We got the political-economic uncertainty through an index representing the frequency of information regarding uncertainty made available in the countries' media from 2003 to 2018. After calculating Hurst's exponent in four-time windows, the regression method with panel data was used, with the cultural dimensions, inflation, and growth of the economy as control variables. The results point to a negative and significant relationship of economic-political uncertainty with market inefficiency. These findings denote periods of more significant economic-political uncertainty and tend to present less informational inefficiency. However, the global financial crisis results point to a positive and significant relationship between political uncertainty and market inefficiency. These results show that uncertainty increased the level of inefficiency, specifically in periods of recession. However, this picture has reversed over the years, which may represent that the economies have begun to adapt to these environments of uncertainty, thus corroborating capital markets' adaptability.

Keywords: market efficiency; adaptive market; political uncertainty; cultural dimensions. (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://store.ectap.ro/articole/1519.pdf (application/pdf)
http://www.ectap.ro/articol.php?id=1519&rid=142 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:agr:journl:v:1(626):y:2021:i:1(626):p:85-100

Access Statistics for this article

Theoretical and Applied Economics is currently edited by Mircea Dinu

More articles in Theoretical and Applied Economics from Asociatia Generala a Economistilor din Romania / Editura Economica Contact information at EDIRC.
Bibliographic data for series maintained by Mircea Dinu ().