This research aims to investigate the influence of stock market volatility and liquidity turnover on returns in the emerging markets of Middle East and North Africa (MENA countries) using the interaction of global economic policy uncertainty index and exchange rate as a moderating variable. The paper employs panel quantile regression with daily data from January 1, 2000 to August 30, 2024 and a panel quantile regression sensitivity analysis. The findings suggest that the U. S. economic policy uncertainty index was markedly negative; the negative and significant interaction coefficient between the variables of exchange rate fluctuations and worldwide economic policy uncertainty indicates that stock returns of the MENA markets dropped substantially in response to international economic policy uncertainty; the more extensively the exchange rate fluctuated, the lower were the returns. Empirical evidence reveals shifting dynamics in the impact of short-term interest rate volatility on returns as we move from the period before the pandemic outbreak to the post-pandemic era. The study has notable implications for financial investors. Markets’ response to interest rate volatility cannot be predicted with high degree of certainty because the market reacts spontaneously to adjustments in the short-term interest rate even when market players operate rationally and base their decisions on all available information regarding stock prices. As a result, investors may choose to consider selecting shorter-life alternative equities as a long-term hedge against interest rate volatility risk. The MENA countries’ central monetary authorities and governments should work jointly to maintain stock market stability by enacting measures to make stock exchanges and the equity markets more resilient to the negative effects of uncertainty brought on by foreign economic policy, even as exchange rate volatility rises. Additionally, international business entities and traders could also shield themselves against international economic policy-related risk of uncertainty in the midst of currency volatility given the current research.
Идентификаторы и классификаторы
Economic policy uncertainty (EPU) has been identified as a significant global risk indicator that can have a negative impact on global financial markets ever since the terrorist attacks on the US in 2001, global financial crisis of 2008, European immigration crisis in 2015, and European debt crisis threatened the stability of the global financial system (Barak & Ünlü, 2024; Moudud-Ul-Huq & Akter, 2024; Desalegn & Zhu, 2021; Davis, 2016). It can endanger international investors and multinational corporations whose investment interest is in the emerging markets of Middle East and North Africa (MENA). Zeng et al. (2024) contend that EPU has a major impact on the perceptions and preferences of stock market investors including those of the MENA countries. The MENA region is a highly dynamic region, driving investment opportunities both regionally and across the globe. Today it seeks to develop its capital markets to ensure the ease of access to the opportunities available. The securities sector in the MENA region has substantially improved its performance over the recent years thanks to stronger local financial institutions, greater presence of regional asset managers and increased interest from foreign investors. There are over twenty stock markets in the MENA countries; we consider ten of them, specifically Abu Dhabi Securities Exchange (UAE), Saudi Exchange, Iraq Stock Exchange, Amman Stock Exchange, Iraq Stock Exchange, Tehran Stock Exchange, Kuwait Stock Exchange, Muscat Securities Market, Doha Securities Market and Borsa Istanbul, as these have so far been neglected by other researchers in the area of stock market analysis.
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