The Effects of High Uncertainty Risk on International Stock Markets

TY - JOUR

T1 - The Effects of High Uncertainty Risk on International Stock Markets

AU - Christiansen, Charlotte

PY - 2023

Y1 - 2023

N2 - We conduct an international analysis of the cross-sectional risk premiums of uncertainty risk factors in addition to traditional risk factors. We consider international stock markets in five regions separately. We measure uncertainty by the local and US economic policy uncertainty indices. Economic policy uncertainty risk has negative risk premiums. This implies that investors get lower returns for assets with high uncertainty betas. We further analyze a nonlinear relationship between excess returns and uncertainty risk by adding the downside economic policy uncertainty risk factor which captures high levels of uncertainty, similar to downside market risk. The downside uncertainty risk factor has negative risk premiums.

AB - We conduct an international analysis of the cross-sectional risk premiums of uncertainty risk factors in addition to traditional risk factors. We consider international stock markets in five regions separately. We measure uncertainty by the local and US economic policy uncertainty indices. Economic policy uncertainty risk has negative risk premiums. This implies that investors get lower returns for assets with high uncertainty betas. We further analyze a nonlinear relationship between excess returns and uncertainty risk by adding the downside economic policy uncertainty risk factor which captures high levels of uncertainty, similar to downside market risk. The downside uncertainty risk factor has negative risk premiums.

KW - Downside risk

KW - Economic policy uncertainty

KW - Factor models

KW - International stock returns

UR - https://www.scopus.com/pages/publications/85176604777

U2 - 10.1007/s10479-023-05664-0

DO - 10.1007/s10479-023-05664-0

M3 - Journal article

SN - 0254-5330

JO - Annals of Operations Research

JF - Annals of Operations Research

ER -