Randomized trial investigates impact of US political signal quality on global equity markets, suggesting monitoring for economic pressures.
Key Points
This research aims to explore how the quality of political signals in the US affects equity markets in both advanced and emerging economies.
Utilized the Global Vector Autoregressive (GVAR) model to analyze the data across 32 economies.
Decomposed the quality index into high- and low-quality shocks to assess their differential impacts.
Examined the role of the Global Economic Policy Uncertainty (GEPU) index as a contrasting variable.
A one-standard-deviation shock to the US Q-index results in a 0.15% immediate negative impact on foreign equity markets.
Low-quality shocks increase equity prices by up to 0.12% but transmit effects slowly, while high-quality shocks lead to a comparable and quicker price reduction.
Contrastingly, GEPU shocks influence real equity prices directly and instantaneously, bypassing the exchange-rate mechanism.