Asymmetric effects of economic policy uncertainty on stock returns under different market conditions: evidence from G7 stock markets

ABSTRACT

This article applies quantile regression approaches to investigate the asymmetric effects of economic policy uncertainty (EPU) on G7 stock returns by dividing EPU changes into EPU increases and EPU decreases. We observe that EPU increases have greater impacts on G7 stock returns than EPU decreases, which confirms that asymmetric effects do exist. Furthermore, our results show that EPU changes have asymmetric impacts on Japan, Canada, the UK, and the US stock returns in the bearish market but not in the bullish market. In addition, there are no asymmetric effects of EPU changes on Germany stock returns.

KEYWORDS:

• Economic policy uncertainty
• G7 stock returns
• asymmetric effects
• quantile regression

JEL CLASSIFICATION:

• C32
• E44
• G15

Acknowledgments

This work was supported by the National Natural Science Foundation of China (No.71771042), the Fundamental Research Funds for the Central Universities (N180614004) and the Project of Humanities and Social Science of Ministry of Education of China (Grant No.18YJCZH224).

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ This article focuses on contemporaneous effects of EPU changes on stock returns rather than their predicative relationships. Hence, the lagged independent variables are not included in equation.

Additional information

Funding

This work was supported by the National Natural Science Foundation of China [No.71771042];the Fundamental Research Funds for the Central Universities [N180614004];the Project of Humanities and Social Science of Ministry of Education of China [Grant No.18YJCZH224].