Do Stock Markets in South Asia Respond to Economic Policy Uncertainty in the United States?
University of Maryland Eastern Shore - School of Business and Technology
June 27, 2012
This paper examines if stock markets in South Asia (Bangladesh, India, Nepal, Pakistan and Sri Lanka) respond to the changes in economic policy uncertainty in the United States. Based on the analysis of monthly returns on the stock market indices in Bangladesh from 1990:1 to 2009:4, India and Pakistan from 1985:2 to 2012:5, Nepal from 1996:1 to 2012:5, and Sri Lanka from 1993:1 to 2012:5, the results show that stock markets in India and Pakistan negatively and significantly respond to the changes in economic policy uncertainty in the U.S. While stock markets in Bangladesh, Nepal and Sri Lanka negatively respond to the changes in economic policy uncertainty in the U.S., this response is not significant. The findings provide empirical evidence of the effect of economic policy uncertainty in the U.S. on the performance of stock markets in South Asia. This study provides an important implication for equity investment and risk management.
Keywords: economic policy uncertainty, stock return performance, USA, South Asia
JEL Classification: E60, G12, G14
Date posted: June 27, 2012
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