Congratulations to Ph.D. student, Jingjing Xu! Her first thesis chapter, “Does Culture Play a Role in the Stock Market’s Response to Uncertainty?” (solo-authored), has been accepted into the International Journal of Finance and Economics.
And, congratulations also to Professor Minjoon Lee for his thesis supervision, help and support in achieving this successful outcome.
Abstract
While a growing body of literature documents a decrease in stock returns with an increase in economic uncertainty, the magnitude of this decrease may differ across countries. This paper examines whether a national culture that shapes its people’s views towards uncertainty can serve as an explanation if there are heterogeneous responses of the stock market to an increase in economic uncertainty at the country level. Using the economic policy uncertainty index to proxy for economic uncertainty and employing an SVAR model, this paper first finds that the magnitude of a stock market’s response to an increase in uncertainty varies across countries. This paper then adopts the uncertainty avoidance index as a proxy measure of culture relating to people’s views towards uncertainty and finds that the observed cross-country heterogeneity is correlated with the degree of a society’s uncertainty avoidance. The stock market index is likely to drop more in response to an increase in uncertainty in countries with higher uncertainty avoidance.