The impact of economic policy uncertainty on stock prices

This study employs a panel local projections (LP) model to analyze the influence of economic policy uncertainty on real equity returns based on thirteen economies, collectively accounting for 77.4 % of global output. Utilizing both linear and non-linear LP models, we demonstrate that economic policy uncertainty exerts a negative impact on real equity returns. Moreover, the non-linear LP model reveals that uncertainty amplifies real equity return losses, particularly during non-expansionary periods, where the impact is twice as high on impact and exhibits greater persistence. These findings offer valuable insights for policymakers and investors.

Automated summary

This study uses a panel local projections model to examine the impact of economic policy uncertainty on real equity returns. The results show that economic policy uncertainty has a negative effect on real equity returns. Furthermore, the study reveals that during non-expansionary periods, uncertainty amplifies the losses in real equity returns, with a twice as high immediate impact and greater persistence.