How Does Economic Policy Uncertainty in Europe Affect the U.S. Stock Market?
University of Maryland Eastern Shore - School of Business and Technology
June 27, 2012
Motivated by the current financial and economic situation in Europe, this paper seeks to establish how the changes in economic policy uncertainty in Europe affect the stock market performance in the United States. Analyzing monthly index of economic policy uncertainty in Europe and monthly returns on CRSP value-weighted index from 1993 to 2011, this study shows that the changes in economic policy uncertainty in Europe negatively (b = -.0004567; t = -4.90) affect the returns on CRSP value-weighed index. The findings provide empirical evidence of the effect of economic policy uncertainty in Europe on the stock market performance in the United States. The findings suggest that stock market performance in the US is linked to the economic policy conditions in Europe. This study provides an important implication for investment and risk management in the financial markets.
Keywords: economic policy uncertainty, stock market performance, USA, Europe
JEL Classification: E60, G12, G14
Date posted: June 28, 2012
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