EKONOMİ POLİTİKASI BELİRSİZLİĞİ İLE G7 ÜLKE BORSALARI ARASINDAKİ İLİŞKİ
THE RELATIONSHIP BETWEEN ECONOMIC POLICY UNCERTAINTY AND G7 STOCK MARKETS

Summary/Abstract: The concept of uncertainty, which emerges in situations such as war, financial crises and political elections, has a great influence on the decisions of economic units. An environment of uncertainty negatively affects investors' confidence in the economy. One of the areas where the negative effects of uncertainty can be observed is country stock markets. This study explores the relationship between the economic policy uncertainty index and stock exchange in G7 developed markets. For this purpose, the monthly period from 1997 to 2019 is examined with second-generation panel data methodologies to consider the possible cross-sectional dependence among observed markets. In estimating the long-term effect of the economic policy uncertainty on the G7 country stock market indices, the Common Correlated Effect (CCE) estimator, which considers the cross-sectional dependency observed between countries. The causality relationship between the economic policy uncertainty index and the G7 country stock market indexes is examined with the panel causality test, which considers the cross-section dependency and heterogeneity. The results show that economic policy uncertainty negatively affects the G7 stock market indices in the long term. On the other hand, the panel causality test results reveal that there is bidirectional causality between economic policy uncertainty and financial markets.

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