Economic Policy Uncertainty and Stock Market Participation
44 Pages Posted: 26 Jul 2017 Last revised: 22 Feb 2018
Date Written: July 21, 2017
Does economic policy uncertainty affect household stockholding? To answer this question we create a novel measure of household exposure to economic policy uncertainty news by combining survey information on the hours a household spends in reading newspapers and the frequency of such news in the popular press during a household’s pre-interview period. After controlling for household fixed effects, month-year fixed effects and time-varying cognitive skills, we find that households with a higher exposure to economic policy uncertainty news are less likely to invest in stocks held directly or through mutual funds. This effect is independent from the market volatility index and household (first-moment) expectations about the stock market index.
Keywords: Economic Policy Uncertainty; Household Finance; Stockholding; Text Analysis
JEL Classification: D14, D81, G11
Suggested Citation: Suggested Citation