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<p>This article investigates the Granger causality between the domestic Economic Policy Uncertainty (EPU) index, stock returns, and stock volatility in seven emerging countries including Brazil, China, India, Mexico, Nigeria, Russia, and Singapore. The results present a detailed context of Granger causality between EPU and stock return/volatility across these seven countries. In Russia, the effect of policy changes on market dynamics points to the necessity for robust policies that can maintain market stability amid uncertainty. The findings from China and Singapore suggest that EPU may not be a reliable indicator for stock market movements in these regions. Additionally, the consistent impact of EPU on stock volatility in several countries emphasizes the need to integrate EPU measures into risk management and hedging strategies, particularly in places like Mexico where EPU significantly influences volatility. In countries like Nigeria, where the connection between EPU and market variables is weak, the focus might shift towards other domestic or global risk factors. Policymakers are urged to consider these findings to better understand the implications of their decisions on economic stability, especially given the observed bidirectional causality in countries like Brazil before 2016 and Russia, which could lead to increased market volatility.</p>

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Time-Varying Granger Causality Analysis: the Relationship Between Domestic Economic Policy Uncertainty and Stock Markets in Emerging Economies

  • 期刊论文

  • 发表日期：

    2025年6月5日

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  • Thi Diem Huong Hoang,
  • Thi Tuan Anh Tran,
  • Nhan-Phu Chung

摘要

This article investigates the Granger causality between the domestic Economic Policy Uncertainty (EPU) index, stock returns, and stock volatility in seven emerging countries including Brazil, China, India, Mexico, Nigeria, Russia, and Singapore. The results present a detailed context of Granger causality between EPU and stock return/volatility across these seven countries. In Russia, the effect of policy changes on market dynamics points to the necessity for robust policies that can maintain market stability amid uncertainty. The findings from China and Singapore suggest that EPU may not be a reliable indicator for stock market movements in these regions. Additionally, the consistent impact of EPU on stock volatility in several countries emphasizes the need to integrate EPU measures into risk management and hedging strategies, particularly in places like Mexico where EPU significantly influences volatility. In countries like Nigeria, where the connection between EPU and market variables is weak, the focus might shift towards other domestic or global risk factors. Policymakers are urged to consider these findings to better understand the implications of their decisions on economic stability, especially given the observed bidirectional causality in countries like Brazil before 2016 and Russia, which could lead to increased market volatility.