The impact of economic policy uncertainty on stock prices

William Ginn

Economics Letters, 2023, vol. 233, issue C

Abstract: This study employs a panel local projections (LP) model to analyze the influence of economic policy uncertainty on real equity returns based on thirteen economies, collectively accounting for 77.4 % of global output. Utilizing both linear and non-linear LP models, we demonstrate that economic policy uncertainty exerts a negative impact on real equity returns. Moreover, the non-linear LP model reveals that uncertainty amplifies real equity return losses, particularly during non-expansionary periods, where the impact is twice as high on impact and exhibits greater persistence. These findings offer valuable insights for policymakers and investors.

Keywords: Equity prices; Linear and nonlinear local projections; and Economic policy uncertainty (search for similar items in EconPapers)
JEL-codes: E44 F44 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:233:y:2023:i:c:s0165176523004585

DOI: 10.1016/j.econlet.2023.111432

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