• East Asian Economic Review
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• v.27 no.1
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• pp.33-60
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• 2023

This paper analyzes the entire distribution of stock market returns/volatility in five emerging markets (ASEAN5) and figures out the conditional distribution of the CHI_EPU index. The aim is to examine the impact of CHI_EPU on the stock returns/volatility density of ASEAN5 markets. It also examined whether changes in CHI_EPU explain returns at higher or lower points (abnormal returns). This paper models the behaviour of stock returns from March 2011 to June 2018 using a non-parametric conditional density estimation approach. The results indicate that CHI_EPU diminishes stock returns and augments volatility in ASEAN5 markets, except for Malaysia, where it affects stock returns positively. The possible reason for this positive impact is that EPU is not the leading factor reducing Malaysian stock returns; but, other forces, such as dependency on other countries' stock markets and global factors, may have a positive impact on stock returns (Bachmann and Bayer, 2013). Thus, the risk of simultaneous investment in Chinese and ASEAN5 stock markets, except Malaysia, is high. Further, the degree of this influence intensifies at extreme high/low intervals (positive/negative tails). The findings of this study have significant implications for investors, policymakers, market agents, and analysts of ASEAN5.