Economic policy uncertainty spillover effects on sectoral equity returns of New Zealand

Faruk Balli, Hatice Balli, Mudassar Hasan () and Russell Gregory-Allen
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Mudassar Hasan: Massey University
Russell Gregory-Allen: Massey University

Journal of Economics and Finance, 2020, vol. 44, issue 4, No 3, 670-686

Abstract: Abstract In this paper, we introduce a weekly index of economic policy uncertainty (EPU) for New Zealand and examine the return and volatility spillovers from New Zealand (local) and US (foreign) EPU on aggregate (NZSE) and sectoral indices of New Zealand stock market. The multivariate VAR (1)-BEKK-GARCH model is employed for this purpose. Overall, our findings suggest that NZ equity sectors and NZSE receive much stronger and more pronounced spillover effects from US EPU compared to the local counterpart (NZ EPU). While the return spillovers from both EPUs are somewhat similar yet limited to just a few sectors, the effect of US EPU on NZ sectors’ volatility outstrips that of the NZ EPU. Furthermore, while the domestically oriented sectors are relatively more vulnerable to NZ EPU, those having export/import concentration with the US are mainly susceptible to US EPU. These findings may be useful to investors seeking sectoral diversification opportunities across New Zealand and the US.

Keywords: Spillover models; Economic policy uncertainty; Stock markets (search for similar items in EconPapers)
JEL-codes: C32 G12 G15 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (9)

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DOI: 10.1007/s12197-020-09508-6

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