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
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Journal of Finance and Economics. 2021, 9(3), 106-114
DOI: 10.12691/jfe-9-3-2
Open AccessArticle

Trade Policy Uncertainty, Market Return, and Expected Return Predictability

Frederick Adjei1 and Mavis Adjei2,

1Economics and Finance Department, Southeast Missouri State University, Cape Girardeau, USA

2Department of Marketing and Management, Southern Illinois University, Carbondale, USA

Pub. Date: June 15, 2021

Cite this paper:
Frederick Adjei and Mavis Adjei. Trade Policy Uncertainty, Market Return, and Expected Return Predictability. Journal of Finance and Economics. 2021; 9(3):106-114. doi: 10.12691/jfe-9-3-2

Abstract

Using the Trade Policy Uncertainty (TPU) index as a proxy for the level of trade policy uncertainty in the U.S. economy, we study the impact of the level of trade policy uncertainty on the conditional mean of market returns. Additionally, we investigate the predictive power of trade policy uncertainty on future market returns. Our findings show that after accounting for business cycle effects, TPU does not impact contemporaneous market returns. However, TPU is a robust predictor of future market returns in both univariate and bivariate regression tests. Specifically, our findings present unequivocal evidence of a positive relation between TPU and expected market returns.

Keywords:
Trade Policy Uncertainty

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