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Economic Policy Uncertainty and Stock Return Momentum

Garima Goel, Saumya Ranjan Dash, Mário Nuno Mata, António Caleiro, João Xavier Rita and José António Filipe
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Garima Goel: Finance and Accounting Area, Indian Institute of Management Indore (IIM Indore), Indore 453556, India
Saumya Ranjan Dash: Finance and Accounting Area, Indian Institute of Management Indore (IIM Indore), Indore 453556, India
Mário Nuno Mata: ISCAL-Instituto Superior de Contabilidade e Administração de Lisboa, Instituto Politécnico de Lisboa, Avenida Miguel Bombarda 20, 1069-035 Lisboa, Portugal
João Xavier Rita: ISCAL-Instituto Superior de Contabilidade e Administração de Lisboa, Instituto Politécnico de Lisboa, Avenida Miguel Bombarda 20, 1069-035 Lisboa, Portugal
José António Filipe: Departamento de Matemática, Iscte-Instituto Universitário de Lisboa, ISTAR-Iscte, BRU-Iscte, 1649-026 Lisboa, Portugal

JRFM, 2021, vol. 14, issue 4, 1-17

Abstract: This paper investigates the relationship between economic policy uncertainty (EPU), an index capturing newspaper coverage of policy-related issues, and momentum profits. Momentum remains an unexplained anomaly. Our findings reveal a statistically negative association between EPU and hedge momentum portfolios. The short side portfolio dominates this effect as compared to the long side. EPU is statistically significant after controlling for macroeconomic variables. Furthermore, the paper conducts a battery of time series analysis, which highlights that EPU has a causal relationship with the hedge portfolio in the short run. On the other hand, the hedge portfolio has a long-term relationship with EPU, not the other way around.

Keywords: momentum; economic policy uncertainty; macroeconomy (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2021
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