Role of global, regional, and advanced market economic policy uncertainty on bond spreads in emerging markets

Balcilar M., USMAN O., Gungor H., Roubaud D., Wohar M. E.

Economic Modelling, cilt.102, 2021 (SSCI) identifier

  • Yayın Türü: Makale / Tam Makale
  • Cilt numarası: 102
  • Basım Tarihi: 2021
  • Doi Numarası: 10.1016/j.econmod.2021.105576
  • Dergi Adı: Economic Modelling
  • Derginin Tarandığı İndeksler: Social Sciences Citation Index (SSCI), Scopus, International Bibliography of Social Sciences, Periodicals Index Online, ABI/INFORM, Business Source Elite, Business Source Premier, EconLit, Public Affairs Index
  • Anahtar Kelimeler: Bond spread, Economic policy uncertainty, Quantile causality test, Volatility
  • İstanbul Ticaret Üniversitesi Adresli: Evet

Özet

This paper investigates the predictive content of news-based advanced market, regional, and global economic policy uncertainty (EPU) measures for bond spreads and their volatility in emerging markets (EMs) by extending the higher (k-th) order nonparametric causality-in-quantiles test to a multivariate case. Results show that global and advanced market EPU measures have predictive power for EM bond spreads in the lower and upper quantiles while for volatility, the predictive power is stronger in the upper quantiles and further observes predictability in the mid quantiles. Predictability detected for all EMs is characterized by an inherent heterogeneity leading to an asymmetric pattern over the distribution of EM bond spreads and volatility. The implication for heterogeneity in our results is that when EPU is high in advanced markets, global investors’ appetite for the EM local currency bonds increases due to high yields. However, when EPU is low, global investors move out of EMs because of the perceived unsafe investment environments in EMs.