Fund Flows, Stock Markets, and Economic Policy Uncertainty: From the Perspective a CIVET Nation

Joseph French, Philipp D. Schaberl and Rodrigo Taborda

Emerging Markets Finance and Trade, 2024, vol. 60, issue 5, 967-982

Abstract: We investigate the relationships among economic policy uncertainty (EPU), equity fund flows (EFF), and the Colombian stock market. Results show adverse impacts of domestic, global, and regional EPUs on Colombia’s stock returns and EFF. Global and regional EPUs transmit to Colombian EPU which makes the market vulnerable to uncertainty shocks. A global EPU shock reduces returns by 2.2% the following month, raises Colombian EPU by 12%, and reduces EFF by 0.24%. Furthermore, heightened EPU increases liquidity and reduces stock returns. Our results suggest a feedback loop where uncertainty shocks increase trading, fuel domestic uncertainty, and reduce equity prices.

Date: 2024
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DOI: 10.1080/1540496X.2023.2259058

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