Economic policy uncertainty, market returns and expected return predictability

Frederick A. Adjei and Mavis Adjei

Journal of Financial Economic Policy, 2017, vol. 9, issue 3, 242-259

Abstract: Purpose - Using the economic policy uncertainty (EPU) index as a proxy for the level of EPU, we study the impact of the level of EPU on the conditional mean of market returns and we examine the predictive power of EPU on future market returns. Design/methodology/approach - We employ a GARCH-in-Mean model with exogenous variables. Findings - The results show that even after controlling for business cycle effects, EPU is inversely related to contemporaneous market returns. Particularly, the authors find that the negative impact of EPU subsists only during recessions or recessionary states of the economy, and has no discernible effects during expansionary periods. Originality/value - This is the first study to examine the predictive power of EPU on future market returns.

Keywords: Financial Markets; Financial Economics; P43 (search for similar items in EconPapers)
Date: 2017
References: Add references at CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:jfeppp:jfep-11-2016-0074

DOI: 10.1108/JFEP-11-2016-0074

Access Statistics for this article

Journal of Financial Economic Policy is currently edited by Prof Franklin Mixon

More articles in Journal of Financial Economic Policy from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support (feeds@emerald.com).