Impact of economic policy uncertainty on the stock exchange of thailand: Evidence from the industry-level stock returns in thailand

Abstract

© 2021, The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG. This study quantifies the economic policy uncertainty of Thailand and investigates the impact of this uncertainty on agriculture and food (agro-food); and technology stock sectors. A two-step procedure was employed in this study. First, we measure the economic policy uncertainty during January 2004–December 2018. We collect the frequency of internet searches and use the method of Baker et al. (2016) to compute the economic policy uncertainty index for Thailand. We verify our index based on R-Squared and the result shows that R-Squared between the SET index and our EPU is 0.7006. This indicates a high performance of our EPU in explaining the SET index. Second, we apply the DCC-GARCH model to present the relationship between Thai EPU index and two stock sectors. Our results reveal that the mean value of the dynamic conditional correlation between the EPU index and agro-food sector stock return is $$-0.0890$$, while that of the EPU index and technology sector stock return pair is $$-0.0488$$. Thus, the EPU did produce a negative impact on the two stock sectors under investigation.