The Impact of Directional Global Economic Policy Uncertainty on Indian Stock Market Volatility: New Evidence

Aswini Kumar Mishra (), Anand Theertha Nakhate (), Yash Bagra (), Abinash Singh () and Bibhu Prasad Kar ()
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Aswini Kumar Mishra: BITS
Anand Theertha Nakhate: BITS
Yash Bagra: J.P Morgan Chase
Abinash Singh: Indian Institute of Management Bangalore
Bibhu Prasad Kar: National Law University Odisha

Asia-Pacific Financial Markets, 2024, vol. 31, issue 3, No 1, 423-452

Abstract: Abstract This paper examines the effect of economic policy uncertainty (EPU) on the Indian capital market using the generalized autoregressive conditional heteroscedastic mixed data sampling (GARCH-MIDAS) approach. This study also disintegrates the Global EPU (GEPU) on its components using identity functions such as up, down, and composite parts dependent on the adjustment in the heading of the EPU and GEPU and tests the linkages among these parameters and the Indian securities exchange instability. Our empirical study shows that GEPU positively and significantly impacts the Indian capital market's volatility. That indicates that the Indian capital exchange volatility will also be unstable when the global economic policy uncertainty is higher. Further, based on the dynamic directions of EPU and GEPU, our results show that, in diverse situations, directional GEPU may present differently in predicting the uncertainty in the Indian capital market. This is primarily so when EPU and GEPU climb in the same period when our approach can obtain more powerful prediction precision.

Keywords: Economic policy uncertainty (EPU); Global economic policy uncertainty (GEPU); GARCH-MIDAS model (search for similar items in EconPapers)
JEL-codes: E60 F40 G30 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s10690-023-09421-y

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