Economic Policy Uncertainty and Short-term Reversals

Andy C. W. Chui ()

Chapter 28 in Handbook of Investment Analysis, Portfolio Management, and Financial Derivatives:In 4 Volumes, 2024, pp 923-949 from World Scientific Publishing Co. Pte. Ltd.

Abstract: This chapter finds that short-term reversals become more profound in the current month when economic policy uncertainty is larger in the prior month. There is evidence that the economic policy uncertainty influences return reversals through the liquidity channel. Short-term reversal profits are also positively related to the VIX index, the Baker–Wurgler (2007) investor sentiment index, and the Aruoba–Diebold–Scotti (2009) business conditions index in the prior month. Though, the predictability of the latter two indexes is less robust. However, adding these indexes and other variables does not weaken the relationship between economic policy uncertainty and return reversals.

Keywords: Financial Accounting; Financial Auditing; Mutual Funds; Hedge Funds; Asset Pricing; Options; Portfolio Analysis; Risk Management; Investment Analysis; Momentum Analysis; Behavior Analysis; Futures; Index Futures; CDCs; Financial Econometrics; Statistics; Financial Derivatives; Financial Accounting (search for similar items in EconPapers)
JEL-codes: G1 G11 G12 G3 M41 M42 (search for similar items in EconPapers)
Date: 2024
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