Abstract

http://ssrn.com/abstract=2087195
 
 

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Long-Run Relation and Speed of Adjustment of Economic Policy Uncertainty and Excess Return Volatility


Vichet Sum


University of Maryland Eastern Shore - School of Business and Technology

Fassil Fanta


University of Wisconsin - Stout

June 18, 2012

International Research Journal of Finance and Economics, 102, 6-12

Abstract:     
This study examines the relationship between excess return volatility and economic policy uncertainty in U.S using monthly data for the period 1985-2011. The result reveals the existence of a long-run positive relationship between excess return volatility and economic policy uncertainty. The casualty test indicates that economic policy uncertainty Granger-causes excess return volatility. The vector error correction model result shows that previous values of economic policy uncertainty explain the variation in the excess return volatility. Moreover, the deviation of excess return from its long-run equilibrium level by 1 unit, it will adjust back by 7.56 percent of the deviation after a month.

Number of Pages in PDF File: 14

Keywords: economic policy uncertainty, excess return volatility

JEL Classification: E60, G12, G14

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Date posted: June 19, 2012 ; Last revised: December 30, 2012

Suggested Citation

Sum, Vichet and Fanta, Fassil, Long-Run Relation and Speed of Adjustment of Economic Policy Uncertainty and Excess Return Volatility (June 18, 2012). International Research Journal of Finance and Economics, 102, 6-12. Available at SSRN: http://ssrn.com/abstract=2087195 or http://dx.doi.org/10.2139/ssrn.2087195

Contact Information

Vichet Sum (Contact Author)
University of Maryland Eastern Shore - School of Business and Technology ( email )
2105 Kiah Hall
Princess Anne, MD 21853
United States
410-651-6531 (Phone)
410-651-6529 (Fax)
HOME PAGE: http://www.umes.edu/bma/Sum.html
Fassil Fanta
University of Wisconsin - Stout ( email )
Menomonie , WI 54751
United States
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