Asian stock markets, US economic policy uncertainty and US macro-shocks

This paper studies the relationship between changes in the US macroeconomic conditions and the excess return of 10 Asian stock markets (China, India, Indonesia, Korea, Malaysia, Pakistan, Philippines, Sri Lanka, Taiwan, Thailand). My main empirical findings are as follows. First, I find no evidence of a causal relationship (in Granger’s sense) between macroeconomic conditions in the US and Asian stock market excess returns. Second, in a vector autoregressive (VAR) framework, I find that bull Asian stock markets reduce US economic policy uncertainty. Last, I show that negative US credit and industrial production uncertainty shocks, and positive US stock market volatility shocks have generated a short-run drop in Asian stock markets’ performances in the post-subprime crisis era.