Economic policy uncertainty and adaptability in international capital markets
This article has analyzed the association of economic-political uncertainty with efficiency in international capital markets. As the Adaptive Markets Hypothesis (HMA) points out, market efficiency may be affected by changes in market conditions. We understand that periods of economic-political uncer...
Main Authors: | , |
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Format: | Article |
Language: | English |
Published: |
General Association of Economists from Romania
2021-03-01
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Series: | Theoretical and Applied Economics |
Subjects: | |
Online Access: |
http://store.ectap.ro/articole/1519.pdf
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Summary: | This article has analyzed the association of economic-political uncertainty with efficiency
in international capital markets. As the Adaptive Markets Hypothesis (HMA) points out, market
efficiency may be affected by changes in market conditions. We understand that periods of
economic-political uncertainty represent changes in the economic environment of countries. The
capital market’s efficiency level was obtained through Hurst’s exponent, calculated based on the
average performance indicators of stock markets belonging to 21 different economies. We got the
political-economic uncertainty through an index representing the frequency of information
regarding uncertainty made available in the countries’ media from 2003 to 2018. After calculating
Hurst’s exponent in four-time windows, the regression method with panel data was used, with the
cultural dimensions, inflation, and growth of the economy as control variables. The results point to
a negative and significant relationship of economic-political uncertainty with market inefficiency.
These findings denote periods of more significant economic-political uncertainty and tend to present
less informational inefficiency. However, the global financial crisis results point to a positive and
significant relationship between political uncertainty and market inefficiency. These results show
that uncertainty increased the level of inefficiency, specifically in periods of recession. However,
this picture has reversed over the years, which may represent that the economies have begun to
adapt to these environments of uncertainty, thus corroborating capital markets’ adaptability. |
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ISSN: | 1841-8678 1844-0029 |