Asymmetric response of Investor sentiment to Economic Policy Uncertainty, interest rates and oil price uncertainty: Evidence from OECD countries

Figures & data

Table 1. Description of the variables

Variable	Notation	Description	Unit of measure
Investor sentiment:	BCI	Measures the business sentiment to developments in production, orders, and stocks of finished goods in different economic sectors, especially the industrial one.	Index
	CCI	Measures the consumer’s sentiment to the general economic situation and their finances, the database is downloaded from OEDC stat	Index
Economic policy uncertainty	EPU	Measures the uncertainty of economy based on Baker et al. (2016) information from the main newspapers in the country. These data are obtained from https://www.policyuncertainty.com	Index
Interest rate	IR	The basic interest rate of the economy	Monthly %
Oil price uncertainty	OPU	Oil price uncertainty based on a standard deviation of Brent oil price	Dollar
Inflation rate	CPI	The official inflation rate of the OEDC countries was downloaded from OEDC Stat.	Monthly %
Economic growth	LnGDP	The gross domestic product which represents the economic growth of countries	Dollar
Money supply	LnM2	Broad Money supply reflects the real liquidity in the economy	Dollar

Table 2. Descriptive statistics

	BCI	CCI	EPU-pos	EPU-neg	IR-pos	IR-neg	OPU-pos	OPU-neg	LNGDP	LNCPI	LNM3
Mean	100.110	100.1148	1688.9	−1651.5	7.244	−11.25	22.47	−8.378	1.430	10.24	4.606
Median	100.23	100.25	1455.9	−1407.0	5.600	−9.080	27.59	−2.631	1.477	10.29	4.607
Maximum	105.676	109.15	5761.8	0.0000	34.12	0.000	35.28	0.000	2.670	11.001	4.66
Minimum	83.2254	91.8728	0.000	−5663.02	0.000	−46.27	0.000	−35.28	0.999	9.275	4.541
Std. Dev.	1.98533	1.9350	1233.7	1205.5	7.398	10.83	13.48	11.39	0.124	0.413	0.017
Skewness	−0.6482	−0.258	0.8001	−0.7392	1.998	−1.328	−0.526	−1.429	−0.305	−0.524	−0.326
Kurtosis	4.4688	3.47577	3.102	2.913	6.938	4.452	1.581	3.187	6.886	2.508	3.534
Jarque-Bera	810.11	111.18	243.95	208.12	2986.7	870.4	296.2	778.99	1468.55	127.38	67.60
Probability	0.0000	0.0000	0.0000	0.000	0.000	0.000	0.000	0.000	0.000	0.000	0.000
Observations	2277	2277	2277	2277	2277	2277	2277	2277	2277	2277	2277

Table 3. Unit root test

Variable	Im,Pesaran& Shin unit root test statistics (Z-t-tilde-bar)	Accepted hypothesis
BCI	−0,3456	Integrated of order 1
CCI	−0.5949	Integrated of order 1
EPU_pos	16.8138	Integrated of order 1
EPU_neg	17.8549	Integrated of order 1
IR_pos	−8.0440***	Stationary
IR_neg	−6.5116***	Stationary
OPU_pos	−10.9349***	Stationary
OPU_neg	27.9365	Integrated of order 1
GDP	4.0299	Integrated of order 1
CPI	−5.4864	Stationary
M3	−0.5175	Integrated of order 1

Note: The superscripts ***, **, and * represent 1%, 5%, and 10% significance, respectively.

Table 4. Asymmetric impact of economic policy uncertainty, interest rates and oil price uncertainty on investor sentiment (BCI)

D.BCI	variable	Coefficient	D.BCI	Variable	Coefficient
Long-run relationships	$CC{I}_{i,t-1}$	−0.03531***	Short run relationships	$\mathrm{\Delta }EPU\mathrm{\_}po{s}_{i,t}$	−0.00164***
	$EPU\mathrm{\_}po{s}_{i,t-1}$	−0.01172***		$\mathrm{\Delta }EPU\mathrm{\_}ne{g}_{i,t}$	0.000036
	$EPU\mathrm{\_}ne{g}_{i,t-1}$	0.01062*		$\mathrm{\Delta }IR\mathrm{\_}po{s}_{i,t}$	−0.19124**
	$IR\mathrm{\_}po{s}_{i,t-1}$	−0.7654***		$\mathrm{\Delta }IR\mathrm{\_}ne{g}_{i,t}$	0.089734*
	$IR\mathrm{\_}ne{g}_{i,t-1}$	0.2391*		$\mathrm{\Delta }OPU\mathrm{\_}po{s}_{i,t}$	−0.02857**
	$OPU\mathrm{\_}po{s}_{i,t-1}$	−0.02696**		$\mathrm{\Delta }OPU\mathrm{\_}ne{g}_{i,t}$	−0.00751*
	$OPU\mathrm{\_}ne{g}_{i,t-1}$	−0.00854*		$\mathrm{\Delta }IP{C}_{i,t}$	0.09343***
	$IP{C}_{i,t-1}$	−0.073224**		$\mathrm{\Delta }LnGD{P}_{i,t}$	−.0018**
	$lnGD{P}_{i,t-1}$	0.0001839***		$\mathrm{\Delta }LnM{2}_{i,t}$	−1.5146**
	$lnM{2}_{i,t-1}$	0.910872***		Const	3.559***
Normality test		${\chi }_{norm}^2=19,914,$ and Prob> chi2 = 0.0006
Breusch-Pagan test of Heteroscedasticity		${\chi }_{het}^2=$ 1.142, and Prob > chi2 = 0.3110
Ramsey test of misspecification		F(3, 2255) = 0.77, and Prob > F = 0.5127
Bound cointegration test		FPSS = 3,91,and Prob>F = 0.003

Notes: (1) ***significance at 1%, **significance at 5%, and *significance at 10% level;

(2) F_PSS indicates the Pesaran-Shin-Smith F test, the critical value is adopted, k = 4, and the upper bound test statistics at 10%, 5%, and 1% are 2.450, 2.860, and 3.740 respectively;

Table 5. Wald of long and short-run asymmetry relationship test

Null hypothesis	Long run		Short-run
	Wald statistic	p-value	Wald statistic	p-value
EPU_pos = EPU_neg	7.23	0.0072	13.50	0.0002
IR_pos = IR_neg	5.97	0.0183	4.72	0.0490
OPU_pos = OPU_neg	9.12	0.0025	0.53	0.4676

Table 6. Summary of estimation

Variable	Economic Policy Uncertainty		Oil Price Ucertainty		Interest Rates
significant level	Long term	Short term	Long term	Short term	Long term	Short term
Increase	1%	1%	5%	5%	1%	5%
Decrease	10%	Not significant	10%	10%	10%	10%

Table 7. Asymmetric impact of economic policy uncertainty, interest rate and oil price uncertainty on investor sentiment (CCI)

D.CCI	Variable	Coefficient	D.CCI	Variable	Coefficient
Long-run relationships	$CC{I}_{i,t-1}$		Short run relationships	$\mathrm{\Delta }EPU\mathrm{\_}po{s}_{i,t}$	−0.00185***
	$EPU\mathrm{\_}po{s}_{i,t-1}$	−0.00935***		$\mathrm{\Delta }EPU\mathrm{\_}ne{g}_{i,t}$	0.000592***
	$EPU\mathrm{\_}ne{g}_{i,t-1}$	0.002245**		$\mathrm{\Delta }IR\mathrm{\_}po{s}_{i,t}$	−0.30507*
	$IR\mathrm{\_}po{s}_{i,t-1}$	−0.7945***		$\mathrm{\Delta }IR\mathrm{\_}ne{g}_{i,t}$	0.5373*
	$IR\mathrm{\_}ne{g}_{i,t-1}$	0.1252*		$\mathrm{\Delta }OPU\mathrm{\_}po{s}_{i,t}$	−0.13633**
	$OPU\mathrm{\_}po{s}_{i,t-1}$	−0.0366**		$\mathrm{\Delta }OPU\mathrm{\_}ne{g}_{i,t}$	−0.23062
	$OPU\mathrm{\_}ne{g}_{i,t-1}$	−0.0148*		$\mathrm{\Delta }IP{C}_{i,t}$	0.03674**
	$IP{C}_{i,t-1}$	−0.0901***		$\mathrm{\Delta }LnGD{P}_{i,t}$	−0.00253**
	$lnGD{P}_{i,t-1}$	0.00429***		$\mathrm{\Delta }LnM{2}_{i,t}$	2.0281**
	$lnM{2}_{i,t-1}$	1.5228***		Const	2.9732**
Normality test		${\chi }_{norm}^2=25,769$ and Prob > chi2 = 0.00041
Breusch-Pagan test of Heteroscedasticity		${\chi }_{het}^2=$ 1.626 and Prob > chi2 = 0.2341
Ramsey test of misspecification		F(3, 2255) = 0.28 and Prob > F = 0.8394
Bound cointegration test		FPSS = 3,83 and Prob > F = 0.007

Notes: (1)***significance at 1%, **significance at 5%, and *significance at 10% level;

(2) F_PSS indicates the Pesaran-Shin-Smith F test, the critical values are adopted, k = 4 and the upper Bound test statistics at 10%, 5%, and 1% are 2.450, 2.860, and 3.740 respectively.

Table 8. Wald of long and short-run asymmetry relationship test

Null hypothesis	Long run		Short-run
	Wald statistic	p-value	Wald statistic	p-value
EPU_pos = EPU_neg	8.25	0.0041	4.06	0.0438
IR_pos = IR_neg	25.47	0.0000	5.35	0.0208
OPU_pos = OPU_neg	10.34	0.0011	1.10	0.2938

Baker, S. R., Bloom, N., & Davis, S. J. (2016). Measuring economic policy uncertainty. Quarterly Journal of Economics, 131(4), 1593–1636. https://doi.org/10.1093/qje/qjw024

 Web of Science ®Google Scholar