The Impact of Economic Policy Uncertainty in Financial Markets: An International Study Analysis

Details

Supervisors

Iania, Leonardo

Faculty

Louvain School of Management

Degree label

Master [120] : ingénieur de gestion, à finalité spécialisée

Abstract

The economic policy uncertainty (EPU) index provides a benchmark of the economic policy uncertainty level of a given country at a given time. Economic policy uncertainty rises interests among researchers as it can be used as an asset pricing indicator for financial markets. In fact, research found that, generally, the EPU index is negatively related to share and bond markets. This study aims at assessing the impact of economic policy uncertainty and other determining factors on the financial markets of developed as well as of emerging countries. To achieve the latter, an extensive review of the literature and an empirical analysis based on real-world data are undertaken. In fact, the impact of the EPU index and several key factors of share and bond returns; the Fama-French factors on the share excess returns between 1997 and 2024 as well as on the bond excess returns between 2015 and 2024 for developed as well as for emerging countries will be assessed. Additionally, the share-bond diversification need between 2015 and 2024 for developed and emerging countries will be assessed. In this thesis, simple and multiple linear regression models seeking for statistical significance with their respective assumptions verification along with share and bond excess returns as well as correlation coefficients computations are conducted. In essence, empirical findings reveal that only the EPU indexes of emerging countries have a significatively positive impact on the share excess returns of emerging countries between 1997 and 2024. Furthermore, most developed and emerging countries present positive share-bond excess returns correlation coefficients between 2015 and 2024 enabling share-bond diversification.