Evidence of Economic Policy Uncertainty and COVID-19 Pandemic on Global Stock Returns

Thomas Chinan Chiang
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Thomas Chinan Chiang: Department of Finance, LeBow College of Business, Drexel University, 3220 Market Street, Philadelphia, PA 19104, USA

JRFM, 2022, vol. 15, issue 1, 1-24

Abstract: This paper examines the impact of changes in economic policy uncertainty (EPU) and COVID-19 shock on stock returns. Tests of 16 global stock market indices, using monthly data from January 1990 to August 2021, suggest a negative relation between the stock return and a country’s EPU. Evidence suggests that a rise in the U.S. EPU causes not only a decline in a country’s stock return, but also a negative spillover effect on the global market; however, we cannot find a comparable negative effect from global EPU to U.S. stocks. Evidence suggests that the COVID-19 pandemic has a negative impact that significantly affects stock return worldwide. This study also finds an indirect COVID-19 impact that runs through a change in domestic EPU and, in turn, affects stock return. Evidence shows significant COVID-19 effects that change relative stock returns between the U.S. and global markets, creating a decoupling phenomenon.

Keywords: economic policy uncertainty; COVID-19; equity market volatility; GARCH model; global market; uncertainty premium (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (7)

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