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Keywords:

  • economic policy uncertainty;
  • stock market performance;
  • USA ;
  • ASEAN

This study investigates if the changes of economic policy uncertainty in the U.S. can explain the returns on stock markets of Indonesia, Malaysia, Philippines, Singapore and Thailand. This study also examines how the stock market returns in the five countries respond to the changes in economic policy uncertainty in the U.S. The Granger causality tests are also performed to determine if the changes in economic policy uncertainty cause the returns on the five stock markets. The results, from analysing monthly date from 1985:2 to 2012:2, show that the changes in economic policy uncertainty in the U.S. are negatively linked to the returns on the five ASEAN stock markets. Controlling for the effect of the U.S stock market, only Philippines coefficient becomes insignificant. The vector autoregressive analyses show that returns on the five ASEAN stock markets negatively respond to the changes in economic policy uncertainty immediately. The Granger causality tests reveal that the changes in economic policy uncertainty in the U.S. cause the returns on the Singapore and Malaysia stock markets; the same cannot said for the case of Indonesia, Philippines and Thailand.