South African Stock Returns Predictability using Domestic and Global Economic Policy Uncertainty: Evidence from a Nonparametric Causality-in-Quantiles Approach

Mehmet Balcilar, Rangan Gupta and Clement Kyei

No 201570, Working Papers from University of Pretoria, Department of Economics

Abstract: This paper analyses whether we can predict South African stock returns based on a measure of economic policy uncertainty (EPU) of South Africa and twenty other developed and emerging markets. While, linear Granger causality tests fail to find evidence of predictability, barring couple of cases, strong evidence of causality is detected from all the EPUs using a nonparametric causality-in-quantiles test. In addition, predictability is found to hold over the entire conditional distribution of stock returns, with the same being strongest around the median, i.e., when the stock market is in a normal mode. Given the existence of nonlinearity and regime changes in our data set, we consider the results from the nonparametric test as more robust relative to the standard causality test.

Keywords: Economic Policy Uncertainty; Stock Prices; Linear Causality; Nonparametric Quantile Causality; South Africa (search for similar items in EconPapers)
JEL-codes: C32 C53 E60 G12 G17 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2015-10
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:pre:wpaper:201570

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