Economic policy uncertainty, Covid-19 and corporate investment: Evidence from the gold mining industry

Mining is a capital-intensive sector that requires substantial upfront investments and continuous capital expenditure to sustain and improve production. This study investigates the impact of Economic Policy Uncertainty (EPU) on the investment decisions of the top 5 gold mining countries, namely Australia, China, Russia, the USA, and Canada, with a focus on the COVID-19 Pandemic. Using a two-step generalized method of moments, we analyze data from 333 gold mining companies from 2006 to 2021. Our results demonstrate that the EPU index has a negative effect on the investment decisions of gold mining companies during the COVID-19 Pandemic. We also utilize quantile regression analysis, which shows that the estimated coefficients for the low and high quantiles are significant. Our study reveals that during periods of uncertainty, gold mining companies tend to be risk-averse, which subsequently dampens investment projects. Furthermore, the capital-intensive nature of the gold mining sector renders companies to be more vulnerable to economic conditions. These findings have significant policy implications for investors, portfolio managers, and policymakers, which will be discussed in the conclusion section.

Economic Policy Uncertainty and Emerging Stock Market Volatility

This research examines the effect of economic policy uncertainty (EPU) indices on Pakistan's stock market volatility. Particularly, we examine the impact of the economic policy uncertainty index for Pakistan and bilateral global trading partner countries, the US, China, and the UK. We employ the GARCH-MIDAS model and combination forecast approach to evaluate the performance of economic uncertainty indices. The empirical findings show that the US economic policy uncertainty index is a more powerful predictor of Pakistan stock market volatility. In addition, the EPU index for the UK also provides valuable information for equity market volatility prediction. Surprisingly, Pakistan and China EPU indices have no significant predictive information for volatility forecasting during the sample period. Lastly, we find evidence of all uncertainty indices during economic upheaval from the COVID-19 pandemic. We obtained identical results even during the Covid-19. Our findings are robust in various evaluation methods, like MCS tests and other forecasting windows.

Economic policy uncertainty, governance institutions and economic performance in Africa: are there regional differences?

In recent years, the global economy has witnessed several uncertainty-inducing events. However, empirical evidence in Africa on the effects of economic policy uncertainty (EPU) on economic activities remains scanty. Besides, the moderating effect of governance institutions on the uncertainty-economic performance relationship in Africa and the likelihood of regional differences in the response of economic activities to EPU on the continent are yet to be investigated. To address these gaps, we applied system GMM and quantile regressions on a panel of forty-seven African countries from 2010 to 2019. We find that while global EPU and EPUs from China, USA and Canada exert considerable influence on economic performance in Africa, the effects of domestic EPU and EPUs from Europe, UK, Japan, and Russia were negligible, suggesting that African economies are resilient to these sources of uncertainty shocks. We also find that governance institutions in Africa are not significantly moderating the uncertainty-economic performance relationship. However, our results highlighted regional differences in the response of economic activities to uncertainty, such that when compared to East and West Africa, economic performance in Central, North and Southern Africa is generally more resilient to global EPU and EPUs from China, USA, Europe and UK. We highlighted the policy implications of these findings.

The COVID-19 pandemic, economic policy uncertainty and the hedging role of cryptocurrencies: a global perspective

PurposeThe COVID-19 pandemic has led to global economic policy uncertainty, which has increased the need to investigate ways to mitigate the uncertainty. This study aims to examine the potential of cryptocurrencies as a hedge and safe haven avenue against economic policy uncertainty.Design/methodology/approachThis study investigates the behavior of the five leading cryptocurrencies in relation to country-level and group-level economic policy uncertainty indices, as measured by the text-based method developed by Baker et al. (The Quarterly Journal of Economics, 2016, 131, 1593-1636). The research covers a broad range of emerging and developed economies from July 2013 to September 2020. The study employs the approach of Narayan et al. (Economic Modelling, 2016, 53, 388-397) to examine the hedging and safe-haven properties of cryptocurrencies.FindingsThis study finds that the top cryptocurrencies play a hedging role against economic policy uncertainty, with some exceptions. Additionally, there is evidence to support the idea that cryptocurrencies can serve as a safe haven during the COVID-19 pandemic. As a result, investors may benefit from using cryptocurrencies as a risk-management avenue during times of uncertainty.Originality/valueThis research contributes to the existing literature by testing the cryptocurrencies' hedging and safe haven properties in a new way, by analyzing their lead and lag behaviors using a recent and innovative approach. Additionally, it examines a wide range of emerging and advanced markets, providing insight into the potential of using cryptocurrencies as a risk mitigation avenue.

Which COVID-19 information really impacts stock markets?

Information about the COVID-19 pandemic abounds, but which COVID-19 data actually impacts stock prices? We investigate which measures of COVID-19 matter most by applying elastic net regression for measure selection using a sample of the 35 largest stock markets. Out of 24 measures, COVID-19 related Google search trends, the stringency of government responses and media hype prevail during the height of the COVID-19 crisis. These measures proxy for COVID-19 related uncertainty, the economic impact of lockdowns and panic-driven media attention, respectively, summarizing key aspects of COVID-19 that move stock markets. Moreover, geographical proximity to the virus's outbreak and a country's development level also matter in terms of impact.

Oil price shocks, economic policy uncertainty, and green finance: a case of China

This study investigates the long- and short-run effects of crude oil price (COP) and economic policy uncertainty (EPU) on China's green bond index (GBI) using the quantile autoregressive distributed lag model. The empirical results show that COP and EPU produce a significant positive and negative influence on GBI in the long-run across most quantiles, respectively, but their short-run counterparts are opposite direction and only significant in higher quantiles. Thus, major contributions are made accordingly and shown in the following aspects. The findings emphasise the importance of understanding how COP and EPU affect China's green bond market for the first time. In addition, both the long- and short-run effects are captured, but long-run shocks primarily drive the green bond market. Finally, time- and quantile-varying analyses are adopted to explain the nexus between COP and EPU to GBI, which considers not only different states of the bond market but also events that occur in different time periods. Some detailed policies, such as a unified and effective green bond market, an early warning mechanism of oil price fluctuation, and prudent economic policy adjustments, are beneficial for stabilising the green finance market.

Explaining US travel behavior with perceived threat of pandemic, consumer sentiment, and economic policy uncertainty.

Since the COVID-19 outbreak, consumer behavior has been affected by the perceived threat of the pandemic and economic uncertainty. This paper aims to explore the dynamic effects of COVID-19, consumer sentiment, economic policy uncertainty, and fuel prices on travel behavior in the United States. Using updated daily trip data, the results show that consumer sentiment has a positive long-run impact on travel demand for air and auto, suggesting that a positive change in consumer sentiment can boost demand for these modes of transportation in the long term. Additionally, consumer sentiment has a favorable effect (1.34) on demand for long-distance trips, but it has a negative impact (-0.42) on the number of people staying at home. Economic and political shocks have a detrimental impact on demand for air and auto travel, suggesting that consumers reduce the frequency and cost of these transport services if they have pessimistic expectations about the future state of the economy and policy. However, in the short term, US travelers appear to be insensitive to shocks in consumer sentiment and economic policy uncertainty. Regarding the perceived threat of the pandemic, the results indicate that rising COVID-19 cases have a negative long-term effect on demand for air travel (-0.09) and public transit (-0.19), while they are positively associated with demand for auto travel (0.06). Similarly, the increasing number of deaths due to COVID-19 has led to a shift from shared-use mass transportation (air travel and public transit) to private autos and non-motorized travel, such as walking in the short term.

Price Volatility Modeling for the Lumber Futures Market: A Generalized Autoregressive Conditional Heteroskedasticity-Mixed Data Sampling Approach

Lumber is one of the most essential forest products in the United States. During the first year of the COVID-19 pandemic, lumber prices almost quadrupled, and fluctuations reached record levels. Although market experts have pointed to various drivers of such high price volatility, no firm conclusions have been drawn yet. Using the generalized autoregressive conditional heteroskedasticity-mixed data sampling (GARCH-MIDAS) framework, this study assesses the potential drivers of lumber price volatility, with predictors including the Google Trends Web Search Index, housing starts, US lumber production quantity, and VIX index, representing public attention, housing demand, lumber supply, and macroeconomic concerns, respectively. We have found that housing demand is the key driver of lumber price volatility, followed by public attention. It is worth noting that US lumber supply and macroeconomic concerns have played a modest role in explaining lumber price volatility. Also, forecasting lumber price by using the housing demand variable substantially outperforms others. Market participants, including lumber mills, wholesalers, and home builders can get valuable information from the housing market to manage lumber price risk.Study Implications: The findings of this study can be used to improve hedging strategies, design option pricing formulas, and setting margin requirements. Critical information for price risk management on the lumber market can be gained by lumber market participants from the housing market. For forest management decisions by landowners, giving close attention to housing market would provide valuable information on the appropriate time for timber harvesting, because changes in the housing market affect lumber price that will indirectly affect the demand for timber, which is the most important factor of production for lumber mills.

Risk and synergy of multinational enterprise mergers and acquisitions under the background of the COVID-19 pandemic

This study includes economic policy uncertainty measures and the magnitude and frequency of Asia pacific multinational business Mergers and acquisitions in 11 countries from 2009 to 2019 to evaluate the impact of uncertainty in economic policies (E.P.U) of global organizations mergers and acquisitions (M&A). To demonstrate that uncertainty in the home nation's economic policy significantly restricts multinational enterprise Mergers and acquisitions, uncertainty in the nation's economic policy significantly enhances Mergers and acquisitions, and that when the economy is in a pro-cyclical phase, these effects are reduced. Furthermore, the economic crisis has different effects of the country's uncertain economic policies on worldwide firm M&As. There is a significant negative correlation between the country's economic policy uncertainty and multinational firm Merger and acquisitions. Third, multinational firm Mergers and acquisitions are significantly impacted by economic policy uncertainties in the ASEAN (Association of Southeast Asian Nations) but not much in emerging countries. The size of M&A is considerably positively connected with foreign market expansion and variations in uncertainties.

Environmental reverberations of geopolitical risk and economic policy uncertainty resulting from the Russia-Ukraine conflict: A wavelet based approach for sectoral CO2 emissions.

After the COVID-19 pandemic, Russia invaded Ukraine in February 2022, and a natural gas crisis between the European Union (EU) and Russia has begun. These events have negatively affected humanity and resulted in economic and environmental consequences. Against this background, this study examines the impact of geopolitical risk (GPR) and economic policy uncertainty (EPU) caused by the Russia-Ukraine conflict, on sectoral carbon dioxide (CO2) emissions. To this end, the study analyzes data from January 1997 to October 2022 by using wavelet transform coherence (WTC) and time-varying wavelet causality test (TVWCT) approaches. The WTC results show that GPR and EPU reduce CO2 emissions in the residential, commercial, industrial, and electricity sectors, while GPR increases CO2 emissions in the transportation sector during the period from January 2019 to October 2022, which includes Russia-Ukraine conflict. The WTC analysis also indicates that the reduction in CO2 emissions provided by the EPU is higher than that of the GPR for several periods. According to the TVWCT, there are causal impacts of the GPR and the EPU on sectoral CO2 emissions, but the timing of the causal impacts differs between the raw and decomposed data. The results suggest that the EPU has a larger impact on reducing sectoral CO2 emissions during the Ukraine-Russia crisis and that production disruptions due to uncertainty have the greatest impact on reducing CO2 emissions in the electric power and transportation sectors.

How Does Firm-Level Economic Policy Uncertainty Affect Corporate Innovation? Evidence from China

Innovation is the main driving force of the sustainable development of enterprises. Economic policy uncertainty has increased dramatically in recent years due to events such as COVID-19, which will alter the business environment of enterprises and ultimately affect their innovation behavior. How economic policy uncertainty will affect corporate innovation has become a crucial topic, but empirical studies have not reached consistent conclusions, and few have noted the heterogeneity of different firms' perceptions of uncertainty. This study used a textual analysis approach to create firm-level economic policy uncertainty indicators from the texts of annual reports of Chinese A-share listed firms. Based on the effectiveness of our measure of economic policy uncertainty, we further examined its impact on firm innovation. We find that our uncertainty measure has negative effects on enterprise innovation activity, and this negative impact is more significant among non-state-owned enterprises, and firms with higher financial constraints and lower government subsidies. We extend the measurement of economic policy uncertainty from the micro level and provide some suggestions for policymakers at the macro level. In the period of increasing uncertainty in the external environment, the government should try to maintain the stability and transparency of economic policies, and provide more targeted policy support to enterprises, such as by broadening their financing channels and providing innovation subsidies. © 2023 by the authors.

Macroeconomic information, global economic policy uncertainty and gold futures return predictability

This study investigates the impacts of the macroeconomic variables and global economic policy uncertainty (GEPU) on gold futures return predictability using a simple regression. We find that few macroeconomic variables (e.g., inflation) can significantly have impact on gold futures excess returns. Out-of-sample results indicate that inflation can increase the forecast accuracy compared to other strategies, even during the COVID-19, two- and three-month ahead forecasts. However, the GEPU index is useless to predict the gold futures returns in various conditions and formulations. © 2023

Can green assets hedge against economic policy uncertainty? Evidence from China with portfolio implications

This paper examines whether green assets can hedge against economic policy uncertainty (EPU) via asymmetric time-varying connectedness and EGARCH models. Using daily data in China spanning from March 2014 to June 2022, we find that (1) an evident asymmetric connectedness exists between green assets and EPU. (2) Green bond, carbon emission allowances and some green stocks can act as hedging or safety-haven assets against EPU, and the conclusion remains robust to an alternative proxy of EPU. (3) The minimum variance and connectedness portfolios provide superior performance during pre- and post-COVID-19 periods, respectively, thereby carrying substantial portfolio implications. © 2023 Elsevier Inc.

A comparative analysis of cryptocurrency returns and economic policy uncertainty pre- and post-Covid-19

This study analyzes the impact of economic policy uncertainty (EPU) on cryptocurrency returns for a sample of 100 highly capitalized cryptocurrencies from January 2016 to May 2021. The results of the panel data analysis and quantile regression show that increases in global EPU have a positive impact on cryptocurrency returns for lower cryptocurrency returns quantiles and an adverse impact for upper quantiles. In line with the existing literature, the Covid-19 pandemic resulted in higher returns for cryptocurrencies. Inclusion of a Covid-19 dummy in the models strengthened the impact of EPU on cryptocurrency returns. Furthermore, the relationship between the change in EPU and cryptocurrency returns was direct in the pre-Covid-19 period but inverse in the post-Covid-19 period. These results imply that cryptocurrencies act more like traditional financial assets in the post-Covid-19 era. © 2023 Elsevier B.V.

Wavelet analysis of S&P 500, oil prices, and economic policy uncertainty

We collect a total of 1830 data from January 2020 to June 2022 and use R for data processing and wavelet analysis. Moreover, we analyze the interactions between the COVID-19 pandemic, the Russian-Ukrainian war, crude oil price, the S&P 500 and economic policy uncertainty within a time-frequency frame work. As a result that the COVID-19 pandemic and the Russian-Ukrainian war has the extraordinary effects on the three indexes and the effect of the Russian- Ukrainian war on the crude oil price and US stock price higher than on the US economic uncertainty. © COPYRIGHT SPIE.

Measuring the frequency and quantile connectedness between policy categories and global oil price

This study explores the connectedness between various categories of economic policy uncertainty (EPU) and global crude oil prices in different frequencies and quantiles using the generalized forecast error variance decomposition and data in the US, China, and Japan from January 2000 to May 2022. The empirical results may be summarized as follows. First, total short and long term connectedness exhibits different patterns and is more sensitive to extreme positive and negative shocks than regular shocks. Second, fiscal policy uncertainty (FPU) and monetary policy uncertainty (MPU) tend to act as net transmitters of shocks, while the roles of trade policy uncertainty (TPU) are mixed in the short term, irrespective of the country. However, under extreme market conditions, no specific-category EPU features a clear net transmitter/recipient. Finally, the results are qualitatively and quantitatively unaffected by the chosen proxy of crude oil prices and are not altered by global real economic activity. © 2023 Elsevier Ltd

Commonality in BRICS stock markets' reaction to global economic policy uncertainty: Evidence from a panel GARCH model with cross sectional dependence

The rapid growth of BRICS has increasingly integrated their markets into the global economy. Thus, making their financial markets more vulnerable to external shocks. This study examines BRICS stock markets' response to global economic policy uncertainty using a panel GARCH model. The results show that global economic policy uncertainty significantly raises volatility with homogeneous response across the markets. The findings also suggests that COVID-19 has amplified the adverse impact of the uncertainties on prices and volatility. One major implication of the findings is that the BRICS can develop a joint policy for mitigating policy uncertainties spillovers. © 2023 Elsevier Inc.

Cross-country categorical economic policy uncertainty spillovers: evidence from a conditional connectedness TVP-VAR framework

Purpose: This study aims to investigate the dynamic interconnectedness of economic policy uncertainty (EPU), fiscal policy uncertainty (FPU) and monetary policy uncertainty (MPU) in four nations, the USA, Japan, Greece and South Korea, between 1998 and 2021. Design/methodology/approach: To comprehend the cross-category/cross-country evolution of uncertainty connectedness, the authors use the conditional connectedness approach. By using an inclusive network, this strategy lessens the bias caused by omitted variables. The TVP-VAR method is advantageous as it eliminates outliers that may potentially skew the results and reduces the bias caused by picking arbitrary rolling windows. Findings: Based on the findings, aggregate EPU is a net transmitter of policy uncertainties across all countries when conditional-country connectedness is used. MPU receives significantly more spillovers than FPU does across all countries, even though both are primarily recipients of uncertainties. The USA appears to be a transmitter of categorical spillovers before COVID-19, while Greece appears to be a net receiver of all category spillovers in terms of category-specific connectedness. The existence of extreme global events is also seen to cause an increase in category-specific and country-specific connectedness. Additionally, the authors report that conditional country-specific connectedness is greater than conditional category-specific connectedness. Originality/value: This study expands existing literature in several ways. Firstly, the authors use a novel conditional connectedness approach, which has not been used to untangle cross-category/cross-country policy uncertainty connectedness. Secondly, they use the TVP-VAR approach which does not depend on rolling windows to understand dynamic connectedness. Thirdly, they use an expanded number of countries in their analysis, a departure from existing studies that have in most cases used two countries to understand categorical EPU connectedness. © 2023, Kingstone Nyakurukwa and Yudhvir Seetharam.

Asymmetric effects of economic policy uncertainty on Bitcoin's hedging power

PurposeEven though Bitcoin has been often labelled as a safe haven asset class in the literature, the influence of economic policy uncertainty (EPU) on the diversifying opportunities offered by Bitcoin in relation to other assets needs to be investigated. This paper aims to investigate how the EPU affects diversification of commodity, conventional, Islamic and sustainable equity returns in relation to its impact on Bitcoin returns.Design/methodology/approachThe authors use advanced time-series econometrics, namely, multivariate generalized autoregressive conditional heteroscedastic-dynamic conditional correlation and continuous wavelet transformation, for the analysis of the daily returns for the aforementioned assets between 01 August 2011 and 01 September 2019.FindingsFirst, the authors found a strong evidence of Bitcoin's mean reverting trend in the long run while its volatility has decreased significantly since 2013. After separating the EPU into two regimes (high and low), diversification opportunities with Bitcoin seems to disappear in a high EPU period, while the hedging opportunity tends to prevail in a low EPU period for all classes of assets. Importantly, the findings indicate that Bitcoin offers short-term diversification for sustainable and Islamic equity as well as energy stocks during a low uncertainty period. Consequently, in relation to the policy uncertainty, Bitcoin provides similar hedging opportunities than commodities like Gold and Silver. Overall, the study shows that EPU is remarkably important in explaining the average portfolio returns of Bitcoin, suggesting that this indicator can be perceived as a decent explanatory factor for portfolio diversification.Originality/valueThe study significantly extends the empirical literature of Bitcoin's portfolio diversification by taking EPU into consideration. To the best of authors' knowledge, this is one of the few studies to investigate the asymmetric effects of US EPU on Bitcoin's hedging capabilities by taking into account major conventional equity, sustainable equity, Islamic equity, gold, silver and oil.

A study investigating the role of economic uncertainty and factors affecting futures indices mispricing

In this paper, we investigate (a) what are the factors that affect the mispricing in benchmark and sectoral indices;(b) the role of economic policy uncertainty (EPU) on the mispricing in future indices;and (c) is there any relationship between the magnitude of mispricing in future indices and the number of factors affecting it. The study deploys regression analysis on the 6930 observations during the period of 2009-2019 for three major indices i.e., Nifty, Nifty Bank and Nifty IT respectively. The study reports that (a) time to maturity and lag of mispricing affect all three indices positively whereas open interest affects Nifty Bank and Nifty IT negatively and spot volume affects only Nifty IT positively;(b) EPU affects positively to all three indices, reflecting that uncertainty increases the mispricing in the stock market;(c) magnitude of the mispricing is directly related to the number of factors affecting that mispricing. Copyright © 2022 Inderscience Enterprises Ltd.