This paper examines the relationship between Economic Policy Uncertainty (EPU) and stock market returns in major European economies, using the COVID-19 pandemic as a structural break. Analyzing data from March 2001 to January 2025 with wavelet techniques, we find a persistent, multi-frequency relationship. Our core result shows that the apparent impact of both COVID-19 and local EPU on peripheral European markets is substantially mediated by spillovers from Germany’s EPU, identifying Germany as a central transmission node. Furthermore, the lead-lag dynamics between uncertainty and returns vary significantly across investment horizons. An extended frequency decomposition reveals that high- and low-frequency components alter the phase relationship, both with and without the COVID-19 variable. We conclude that the EPU-stock return nexus is a complex, frequency-dependent phenomenon, heavily influenced by regional uncertainty spillovers.
Kouassi et al. (Tue,) studied this question.