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

journal contribution
posted on 2022-09-29, 02:55 authored by A Golab, D Bannigidadmath, T N Pham, Kannan ThuraisamyKannan Thuraisamy
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.

History

Journal

International Review of Economics and Finance

Volume

82

Pagination

433 - 447

ISSN

1059-0560

Publication classification

C1 Refereed article in a scholarly journal

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