Economic policy uncertainty and stock market volatility

Li Liu and Tao Zhang

Finance Research Letters, 2015, vol. 15, issue C, 99-105

Abstract: This paper investigates the predictability of economic policy uncertainty (EPU) to stock market volatility. Our in-sample evidence suggests that higher EPU leads to significant increases in market volatility. Out-of-sample findings show that incorporating EPU as an additional predictive variable into the existing volatility prediction models significantly improves forecasting ability of these models. The improvement is robust to the model specifications.

Keywords: Economic policy uncertainty; Realized volatility; Predictability (search for similar items in EconPapers)
JEL-codes: C53 E44 E52 E60 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (192)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:15:y:2015:i:c:p:99-105

DOI: 10.1016/j.frl.2015.08.009

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