On the effects of policy uncertainty on stock prices: an asymmetric analysis

Assessing the impact of policy uncertainty on any macroeconomic variables has recently gained momentum. One recent study that considered its impact on stock returns found that an increase in uncertainty has adverse short-run but not long-run effects. In this study, we show that once the nonlinear adjustment of policy uncertainty is introduced into the same multivariable model, policy uncertainty not only has short-run effects but also long-run effects. Furthermore, in most instances the short-run and long-run effects are asymmetric.