Economic policy uncertainty and industry return predictability – Evidence from the UK

Authors/Creators

Anna Golab, Edith Cowan UniversityFollow
Deepa Bannigidadmath, Edith Cowan UniversityFollow
Thach Ngoc Pham, Edith Cowan UniversityFollow
Kannan Thuraisamy

Abstract

This paper examines whether local, regional, and global policy uncertainty shocks predict the sector returns of the UK stock market. Consistent with the market integration literature, we find global policy uncertainty shock is the major predictor of sector returns. Our second contribution is that the predictability of returns is dependent on the state of the business cycle. Finally, the evidence of predictability is strongest at the 6-month horizon, revealing that the impact of policy uncertainty shocks lasts for a few months. Our findings hold even after controlling for well-known risk factors and different sub-samples of data.

Document Type

Journal Article

Date of Publication

11-1-2022

Volume

82

Publication Title

International Review of Economics and Finance

Publisher

Elsevier

School

School of Business and Law

RAS ID

45229

Comments

Golab, A., Bannigidadmath, D., Pham, T. N., & Thuraisamy, K. (2022). Economic policy uncertainty and industry return predictability–Evidence from the UK. International Review of Economics & Finance, 82, p. 433-447. https://doi.org/10.1016/j.iref.2022.07.006

Copyright

subscription content

First Page

433

Last Page

447