Effects of Economic Policy Uncertainty Shocks on the Long-Run US-UK Stock Market Correlation
11 Pages Posted: 4 Oct 2016 Last revised: 12 Jan 2018
Date Written: October 3, 2016
We use the economic policy uncertainty indices of Baker, Bloom, and Davis (2016) in combination with the mixed data sampling (MIDAS) approach to investigate the US and UK stock market movements. The long-run US-UK stock market correlation depends positively on US economic policy uncertainty shocks. The US long-run stock market volatility depends significantly on the US economic policy uncertainty shocks but not on UK shocks while the UK depends significantly on both.
Keywords: economic policy uncertainty index; mixed data sampling; stock market correlation; stock market volatility
JEL Classification: G11, G15, G30, C32
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