Economic Policy Uncertainty in the United States and Financial Market Returns in Gulf Cooperation Council Countries
On February 28, 2019, Abdullah Saeed S. Alqahtani, Hongbing Ouyang and Adam Ali have published an article entitled “The Reaction of Stock Markets in the Gulf Cooperation Council Countries to Economic Policy Uncertainty in the United States” in Economics and Business.
A Blog Post by Pablo Markin.
In their study, Alqahtani, Ouyang and Ali have deployed Granger causality tests to investigate whether changes in economic policy in the United States (U.S.) are likely to have significant effects on stock market returns in Gulf Cooperation Council (GCC) countries, which include Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates. The researchers have found that, in these countries, “stock markets do not respond to the changes in economic policy uncertainty” (22). This paper has, thus, investigated the premise that “[a]t the regional level, customs, monetary and economic unions are very exposed to [financial market] spillovers between member countries” (23).
In this econometric paper, “[i]n order to control for the effect of U.S. stock market and oil price, monthly returns on each GCC stock market are regressed on economic policy uncertainty in the U.S. (EPU), return on the U.S. stock markets (S&P500) and oil price (Brent)” (29). The statistical analyses of Alqahtani, Ouyang and Ali have shown that “returns on all the six GCC markets do not respond to a shock in economic policy uncertainty in the U.S.” (31).
These empirical results stand in contrast to the financial crisis of 2007–2008 that had significant adverse effects on countries that “had intensive trade with the U.S” (33). These authors, thus, propose that “the GCC stock market performance is not related to the changes in economic policy uncertainty in the U.S.” (33).
By Pablo Markin
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