Can uncertainty signals from the policy-maker infer stock market crises in Latin America?

Can uncertainty signals from the policy-maker infer stock market crises in Latin America?

• Author
• Leonardo Brioschi
• Abstract

• Uncertainty around economic policy keeps economic agents on their toes, this study

  shows that this uncertainty can help predict crises periods in the Latin American stock

  markets, measured by the index from Brazil, Colombia, Chile, Mexico and also US as a

  comparison. For each country a set of market and sentiment variables are transformed

  with PCA testing the ?rst two components with OLS, Probit and Logit. Also, a ?xed

  e?ects logit model was tested considering the months of the year as ?xed. The results

  shows that the crisis index with higher sensitivity are correlated with idiosyncratic EPU

  but only Mexico’s index shows robust correlationship with Global EPU.

• Keywords
• Behavioral Finance , Information and Market E?ciency , Financial Markets.
• Subject Area
• Asset pricing, investments, and Derivatives

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