The spillover effect of economic policy uncertainty: Evidence from analyst behaviors in Hong Kong

This paper examines the spillover effect of economic policy uncertainty on the financial market by comparing how local and external policy uncertainties affect the behaviors of analysts in an in-ternational financial center. Unlike findings in the United States and the United Kingdom, high local policy uncertainty does not significantly decrease analysts' earnings forecast accuracy or exacerbate forecast dispersion in Hong Kong. In contrast, high external policy uncertainty from Mainland China, the U.S., Europe, and across the globe significantly decrease analysts' forecast accuracy in Hong Kong, although these external policy uncertainties have also no significant effect on forecast dispersion. In addition, both local and external policy uncertainties have sig-nificant impact on analyst coverage and recommendations. These results provide strong evidence on the cross-country spillover effect of economic policy uncertainty on a developed and inter-national financial market.

Automated summary

This paper examines the spillover effect of economic policy uncertainty on the financial market in an international financial center. It finds that high local policy uncertainty does not significantly affect analysts' earnings forecast accuracy or forecast dispersion in Hong Kong, but high external policy uncertainty from Mainland China, the U.S., Europe, and globally does decrease analysts' forecast accuracy. Both local and external policy uncertainties also have significant impact on analyst coverage and recommendations.