The time-frequency-quantile causal impact of Cable News-based Economic Policy Uncertainty on major assets returns

ABSTRACT

After the collapse of the equity market in the early 2000s, the question of the drivers of financial assets returns preoccupied the interest of investors and policymakers in financial markets. Thus, this study explores how newly developed Cable News-based Economic Policy Uncertainty (TVEPU) predicts major assets returns using daily data from 1 January 2014 to 30 September 2023. To achieve this objective, we introduced the Rolling Windows Wavelet Quantile Granger Causality (RWWQGC) test. The empirical results show that TVEPU tends to have predictive power for SP500 across time, frequency, and quantile. The results also show that TVEPU has a strong causal impact on major financial assets returns across time, frequency, and quantile. However, the predictive power of TVEPU for the US 10-year bond, US dollar index, and Bitcoin is weak across time, frequency, and quantile. Based on these results, policy recommendations are offered.

KEYWORDS:

• Cable news-based EPU
• major assets returns
• causality
• time-frequency-quantile

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 Once the effect of an uncertainty shock is aggregate demand-type shock, it implies that a greater uncertainty shock increases unemployment and decreases investment, output, and inflation. On the other hand, the aggregate supply channel implies that uncertainty shocks are inflationary.

2 The beginning date (1 January 2014) of the sample period was dictated by the data series available at www.spglobal.com, and the end date (30 September 2023) was dictated by the available TVEPU series.

3 For more details about the TVEPU index, refer to Hong et al. (2021) and Bergbrant and Bradley (2022).