Pricing the common stocks in emerging markets: The role of economic policy uncertainty

Orbay Arkol () and Asil Azimli ()

Modern Finance, 2024, vol. 2, issue 1, 31-50

Abstract: We examine the role of news-based policy uncertainty measures in capturing the cross-section of average stock returns in emerging markets. After controlling for the five established risk factors of Fama and French (FF), we find that policy uncertainty factors are redundant in capturing the average returns of portfolios constructed by considering well-known firm characteristics (size, book-to-market ratio, profitability, and investment). The pricing performance of the five factors model, both statistically and economically, does not improve with the addition of policy uncertainty factors. We argue that the news-based factors' information content is contained in FF risk factors. Our results are robust to additional test statistics and various policy uncertainty factors.

Keywords: asset pricing; emerging markets; factor models; policy uncertainty; cross-section of returns; equity anomalies; the five-factor model (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:bdy:modfin:v:2:y:2024:i:1:p:31-50:id:93

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