Are Stock Prices Related to Political Uncertainty Index in OECD Countries? Evidence from Bootstrap Panel Causality Test
Tsangyao Chang (),
Wen-Yi Chen (),
Rangan Gupta () and
Duc Khuong Nguyen
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Wen-Yi Chen: Center of Health Research and Development, National Taichung University of Science and Technology, Taichung, Taiwan
No 201360, Working Papers from University of Pretoria, Department of Economics
This study applies bootstrap panel causality, proposed by Kónya (2006), to investigate causal link be-tween political uncertainty and stock price for seven OECD countries over the monthly period of 2001.01 to 2013.04. This modeling approach allows us to examine both the cross-sectional dependency and the country-specific heterogeneity. Our empirical results indicate that not all the countries are alike and that the theoretical prediction that stock prices fall at the announcement of a policy change is not always supported. Specifically, we find evidence of the stock price leading hypothesis for Italy and Spain, while the political uncertainty leading hypothesis cannot be rejected for the United Kingdom and the United States. In addition, the neutrality hypothesis was supported in the remaining three countries (Canada, France, and Germany), while the feedback hypothesis, however, is never found.
Keywords: Stock Price; Political Uncertainty Index; Bootstrap Panel Causality Test (search for similar items in EconPapers)
JEL-codes: C23 G12 G18 (search for similar items in EconPapers)
Pages: 21 pages
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Journal Article: Are stock prices related to the political uncertainty index in OECD countries? Evidence from the bootstrap panel causality test (2015)
Working Paper: Are Stock Prices Related to Political Uncertainty Index in OECD Countries? Evidence from Bootstrap Panel Causality Test (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:pre:wpaper:201360
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