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Monetary policy uncertainty and stock returns in G7 and BRICS countries: A quantile-on-quantile approach

Author

Listed:
  • Wen, Fenghua
  • Shui, Aojie
  • Cheng, Yuxiang
  • Gong, Xu
Abstract
Using a quantile-on-quantile (QQ) approach, this study examines the heterogeneous and asymmetric effects of monetary policy uncertainty (MPU) on stock returns in Group of Seven (G7) countries and the BRICS countries. An overall negative effect of MPU is observed on stock returns in most countries, especially in the area that combines higher quantiles of MPU with lower quantiles of stock market. The results show that higher uncertainty decreases stock returns when the stock market suffers a crash. A positive market response to MPU shocks can also be found in the lower quantiles of MPU, suggesting that uncertainty can boost stock performance as well. Finally, this study shows that the market responses to MPU shocks in the G7 countries seem more volatile than in the BRICS countries. In sum, this study reveals the response of stock market at different quantiles to different degrees of monetary policy uncertainty, presenting a complete and precise picture of the overall inter-dependence between stock returns and MPU.

Suggested Citation

  • Wen, Fenghua & Shui, Aojie & Cheng, Yuxiang & Gong, Xu, 2022. "Monetary policy uncertainty and stock returns in G7 and BRICS countries: A quantile-on-quantile approach," International Review of Economics & Finance, Elsevier, vol. 78(C), pages 457-482.
    • Handle: RePEc:eee:reveco:v:78:y:2022:i:c:p:457-482
    DOI: 10.1016/j.iref.2021.12.015
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    More about this item

    Keywords

    Monetary policy uncertainty; Stock returns; Quantile-on-quantile approach; Asymmetric impact;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General

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