Journal of Finance and Economics
ISSN (Print): 2328-7284 ISSN (Online): 2328-7276 Website: http://www.sciepub.com/journal/jfe Editor-in-chief: Suman Banerjee
Open Access
Journal Browser
Go
Journal of Finance and Economics. 2020, 8(2), 57-60
DOI: 10.12691/jfe-8-2-2
Open AccessArticle

Effect of Economic Policy Uncertainty on Market Risk and Market Risk Premium

Frederick Adjei1,

1Economics, Finance & Accounting Department, Southeast Missouri State University, Cape Girardeau, MO, USA

Pub. Date: March 14, 2020

Cite this paper:
Frederick Adjei. Effect of Economic Policy Uncertainty on Market Risk and Market Risk Premium. Journal of Finance and Economics. 2020; 8(2):57-60. doi: 10.12691/jfe-8-2-2

Abstract

We study the effect of the level of economic policy uncertainty on market risk and market risk premium by employing an OLS regression model. The results show that economic policy uncertainty impacts market risk more during the recession periods than during the expansion periods. However, we do not find support for a relationship between economic policy uncertainty and market risk premium. Evidently, the level of economic policy uncertainty impacts market risk and policymakers must take that into consideration when deliberating new economic policy.

Keywords:
Economic Policy Uncertainty Market Risk Market Risk Premium

Creative CommonsThis work is licensed under a Creative Commons Attribution 4.0 International License. To view a copy of this license, visit http://creativecommons.org/licenses/by/4.0/

References:

[1]  Baker, Scott R., Nicholas Bloom, and Steven J. Davis. “Measuring Economic Policy Uncertainty.” Chicago Booth Research Paper No. 13-02 (2013).
 
[2]  Bernanke, Ben. “Irreversibility, uncertainty and cyclical investment.” Quarterly Journal of Economics98 (1983): 85-106.
 
[3]  Pastor, Lubos, and Pietro Veronesi. “Uncertainty about government policy and stock prices.” Journal of Finance67.4 (2012): 1219-1264.
 
[4]  Bernanke, Ben and Kenneth N. Kuttner. “What Explains the Stock Market’s Reaction to Federal Reserve Policy?” Journal of Finance 60 (2005): 1221-1257.
 
[5]  Panousi, Vasia, and Dimitris Papanikolaou, “Investment, idiosyncratic risk, and ownership.”Journal of Finance 67 (2012): 1113-1148.
 
[6]  Santa-Clara, Pedro, and Rossen Valkanov. “The presidential puzzle: Political cycles and the stock market.” The Journal of Finance 58.5 (2003): 1841-1872.
 
[7]  Pastor, Lubos, and Pietro Veronesi. “Political uncertainty and risk premia.” Journal of Financial Economics 110.3 (2013): 520-545.