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Li, Y., Ng, D., and Swaminathan, B., (2013). Predicting market returns using aggregate implied cost of capital, Journal of Financial Economics, 110 (2), 419-436.

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Article

Trade Policy Uncertainty, Market Return, and Expected Return Predictability

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

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


Journal of Finance and Economics. 2021, Vol. 9 No. 3, 106-114
DOI: 10.12691/jfe-9-3-2
Copyright © 2021 Science and Education Publishing

Cite this paper:
Frederick Adjei, 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.

Correspondence to: Mavis  Adjei, Department of Marketing and Management, Southern Illinois University, Carbondale, USA. Email: fadjei@semo.edu

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.

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