Sensitivity of US equity returns to economic policy uncertainty and investor sentiments

Mobeen Ur Rehman, Ahmet Sensoy, Veysel Eraslan, Syed Jawad Hussain Shahzad and Xuan Vinh Vo

The North American Journal of Economics and Finance, 2021, vol. 57, issue C

Abstract: This paper examines the sensitivity of major US sectoral returns to economic policy uncertainty and investor sentiments. Our analysis is based on weekly frequency and ranges from January 1995 to December 2015 covering a span of 20 years. Considering existing, however limited evidence of non-linear structure exhibited by investor sentiments and economic policy uncertainty and on the basis of our non-linear diagnostics, we use novel technique of non-parametric causality in quantiles approach proposed by Balcilar, Gupta, and Pierdzioch (2016). Our results highlight that economic policy uncertainty and investor sentiments act as driving factors for US sectoral returns. The nature of relationship is reported as asymmetrical for stock returns and symmetrical for variance of returns with an exception of Healthcare sector for economic policy uncertainty and bullish market sentiments. Our study carries implications for portfolio diversification and policy makers for forecasting market efficiency and economic trends.

Keywords: US equity returns; Investor sentiments; Economic policy uncertainty (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:57:y:2021:i:c:s1062940821000280

DOI: 10.1016/j.najef.2021.101392

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